In the financial year 2081/82, the government brought a budget in which the local level received 88 billion and the state received 60 billion financial equalization grants. However, the circular of the Comptroller General's Office on January 28 stated that the state and local levels will receive only 13.24 percent of the third installment amount.

The Ministry of Finance instructed the Comptroller General's Office on January 23 to cut the subsidy. In the circular, it is mentioned that the subsidy had to be cut because only 84.33 percent of the revenue target was collected by the end of January. 

According to the Appropriation Act 2081, the Comptroller General's Office has to transfer the amount of one fourth of the financial equalization grant to the reserve fund of the state and local level in four installments on August 2nd, October 2nd, January 2nd and Baisakh 2nd of each year. The Appropriation Act also has the practice of determining the equalization grant based on the revenue target up to the end of January and the ratio of the revenue collected during that period as the third installment and redetermining the equalization grant as the fourth installment based on the revenue target up to the end of March and the revenue collected. 

The government has used this provision of the Appropriation Act to reduce the equalization grant. According to Ministry of Finance sources, there is no situation of collecting revenue as per the estimate even till the end of March. It is certain that the equalization subsidy of the state and local level will be cut in the fourth installment as well. The government has the right to say that there was/is no option to reduce the subsidy after the revenue was not collected as expected. However, while there are many other options for spending reduction, applying scissors to equalization grants provided by the constitution is not only against the spirit of federalism, but also against the spirit of the general principles of grant distribution. 

According to four installments, the local level receives 22 billion per installment and the province receives 15 billion. Receiving only 13.24 percent of the third installment means a reduction of 13 billion for the province and 19 billion for the local level. That is 32 billion of both. If the fourth installment is cut in the same proportion, their back will be broken. Important works including development and construction at the provincial and local levels are done on the basis of this grant. Except for one local government, most of the local governments have a poor internal resource situation. This is their main source of income. It is natural to be disappointed after a massive cut in this. 

Last time too, when the state and local level subsidies were cut, the local level surrounded the Ministry of Finance. Their grants were later withdrawn. But the provinces did not go around the ministry. Went to Bhansun. However, there was no hearing.

When I was a Member of Parliament, I raised this issue many times in the Parliament. I was also of the opinion that such a clause should be removed because the provision of the Appropriation Act restricts the constitutional right of the state and local level to receive equalization grants. The government did not take most of the issues of the state and local level seriously even though they were put in a factual manner. The size of the federal government's budget has grown. The plans and programs of more than half of the federal ministries, including physical infrastructure, urban development, water supply, and sports, have crossed the functional areas of the provincial and local levels, instead of mocking the constitution and laws by putting up small schemes worth lakhs, the ministers have taken it as a joke. As a

, the news that there are 626 projects worth up to 5 lakh in the Ministry of Physical Infrastructure and 99 projects worth up to 1 lakh in the Ministry of Urban Development is in the last June 5 issue of Kantipur Daily. In the previous fiscal year, there were 1,400 schemes up to 5 lakhs in the Ministry of Physical Infrastructure. There were 800 in the Ministry of Water. If there were piecemeal plans like Savik Gavis did for carrying out large-scale strategic importance and 'game changer' projects, the ministers had/would not have had any sense of shame about what they had done. However, now Finance Minister Bishnu Paudel has to say in the Parliament that due to the small plans and programs of the Ministries, the results could not be given. I spent most of the time in Parliament on similar issues.

Now the Ministry of Finance has just opened its eyes. I had also requested to control the size of the plans of the subject ministries from the Ministry Information System (LMBIS) itself during the pre-budget discussion of the Parliament. After the cabinet itself decided that the federal government would not implement schemes smaller than 3 crores, it was suggested that it should be controlled through LMBIS. However, the ministries themselves did not implement the decision.

It is also important for the Ministry of Finance to understand about equalization grants. It should not have been run when there were other options. Doing this is an attack on the financial autonomy of the state and local level. In principle the work should be followed by finance and institutional structure. It is said that work without financial resources is like putting the horse before the buggy. According to the constitution, when discussing work, more than 60 percent of the responsibility of the previous unitary system is at the provincial and local levels.

They are responsible for education, health, roads, water supply, agriculture, animals, etc. To fulfill those responsibilities, rights, including tax revenue, are needed. However, the tax revenue authority of these federal units is very low. If we talk about the province, the situation is pathetic. In such a situation, more financial transfers from the federal government are required to meet the responsibilities of these federal units.

Financial transfer is a means of decentralizing centralized revenue. It is the constitutional right of the provincial and local levels to raise resources through financial transfers. Depositing revenue through financial transfers is the basic spirit of the Constitution. If the revenue base is weak, the financial transfer base needs to be strong. If the revenue base is strong, the financial transfer base is weak. It is not fair for both to be weak.

In relation to financial transfer, there is a discussion of four grants in the constitution. Financial Equalization Grants, Conditional Grants, Special Grants and Complementary Grants. A financial equalization grant is an unconditional grant. In the previous unitary system, local bodies received unconditional grants. Looking at the principles of grants and international experience, there is also a custom to call financial equalization grants as unconditional grants.

Conditional grants are given with conditions for a specific purpose. In this, the state and local levels cannot afford to spend on adaptation. However, the Financial Equalization Grant has no such condition. Plans can be selected and implemented in their own way. Equalization grants should not be reduced. There is also a theory that this subsidy should be increased in proportion to the gross domestic product or budget. 

Special grants are given to improve the areas of education, health, drinking water, etc., to reduce intra-local and inter-regional imbalances. In the context of India, the grant was started in the 1970s from the backward states of Assam, Nagaland, Jammu and Kashmir, and was later given to 11 states. This subsidy also stopped after the abolition of the Planning Commission of India in 2015. The Finance Commission of India revised the formula for distribution of equalization grants and included the issue of special grants in equalization itself.

We have the idea of ​​giving special grants through the 'supply side' to bring development into mainstream. While drafting the law, the bases for distribution of special grants and financial equalization grants are kept to be the same, there is no material difference. The weight of special grants in the total grant distribution is very low. As in the current fiscal year 2081/82, the weight of this subsidy is only 2.73 percent of the total subsidy of the local level. 

The intention of the law is to distribute supplementary grants based on demand to complete a specific project at the provincial and local levels. In the fiscal year 2081/82, the weight of the supplementary subsidy is only 2.25 percent of the total subsidy of the local level. 

In addition to these four grants, the provincial and local levels will also receive revenue sharing (15/15 percent of value added tax and excise duty on domestic production) and royalties on natural resources and resources. This arrangement along with grant distribution is called financial transfer. According to sub-section 3 of Article 60 of the Constitution, the amount of financial transfer received by the provinces and local levels is as per the recommendation of the National Natural Resources and Finance Commission. However, the Commission has no role in the allocation of special and supplementary grants.

Similarly, apart from setting the general basis, the commission does not have a significant role in the distribution of conditional grants. The Commission's role is in fiscal equalization grants and revenue sharing. The basis and pattern of revenue sharing once determined and recommended by the Commission shall remain in force for a period of five years.

When studying and analyzing the theory and practice of financial transfers, financial equalization (unconditional grants) is financial transfer. Similarly, financial transfer is the distribution of grants. Grant distribution is also a financial transfer. It is said that unconditional grants should be increased and conditional grants should be reduced. International theory and practice say the same. While allocating grants, there is a trend of looking at expenditure/financial need, revenue capacity, poverty, accessibility/inaccessibility, regional/regional imbalance, infrastructure development status, financial discipline/governance, social structure etc. We also have these subjects in the law.

When discussing the equalization grant distribution, the equalization grant at the local level in the first federal budget fiscal year 2075/76 was 6.44 percent of the budget of the Government of Nepal. It decreased to 5.87 percent in 2076/77. It was 4.99 percent in 2080/81 and remained limited to 4.73 percent in 2081/82. Regarding the province, it was 3.83 percent in 2075/76.

declined in subsequent fiscal years to 3.23 percent in 2081/82. This grant is constantly decreasing in proportion to the budget. Federalism Implementation Monitoring and Parliamentary Special Committee of the National Assembly, National Natural Resources and Finance Commission and other agencies have recommended that this subsidy should not be reduced, but should be increased in proportion to the budget and GDP. However, the government has ignored the recommendations of the Parliament and the Commission. The theory says it should be increased. That is what is in the constitution. It is not good to increase the subsidy, on the contrary, it is definitely not good to cut down on the subsidy.

The fourth installment received by the state and local levels in the financial year 2080/81 was reduced by 26 percent. Due to continued pressure and agitation by local union federations, the cuts at the local level were reversed. However, the province did not. 15 billion equalization grant of the province was cut.