Generally in federal countries, Sub-national
governments (SNGs) receives intergovernmental grants to finance their assigned
activities and implement national policies. Grants are used to subsidies of
services and equalization of the grants. However, the allocation of grants is
found to be complex in its governance (OECD, 2006).
According to the world bank, the government
introduces intergovernmental transfers for four reasons. First one is to
maintain the vertical balance. Vertical imbalances arise between the SNGs due to the imbalance between the expenditure responsibilities
and revenue raising power, this may cause to a deficiency in service delivery
made by SNGs. The second reason is to equalize the capacities of the resources while in SNGs, their revenue raising capacity
varies. Third one is the externalities. Due to the low revenue capacity SNGs under-spend where substantial external benefits ensure-like spending on health and
education by their own resources. And the last reason shows that
intergovernmental is needed for the public financing system Bahl (2000).
In Nepal, grants stand for the
most important source of financing for the SNGs-State and Local Levels. There
are four types of grants namely: Fiscal Equalization, Conditional, Complementary
and Special Grants. These grants are allocated by the National Natural
Resources and Fiscal Commission(NNRFC) with a certain basis and criteria. The
objectives and criterion for distribution of these grants are presented in the table.
Table-1: Scope of Grants
S.N
|
Types of Grants
|
Objective of Grants
|
Criterion of Distribution
|
1
|
Fiscal Equalization
|
To minimize the Vertical Fiscal
Imbalances.
|
Distribute fiscal equalization grants
to the State and Local Level on the basis of their need for expenditures and
revenue capacity.
|
2
|
Conditional
|
To implement any project of the
State or Local Level or the Government of Nepal on the basis as prescribed by
the Commission
|
Specify necessary terms and
conditions in relation to the implementation of the project and the concerned
State and Local Level shall abide by such terms and conditions.
|
3
|
Complementary
|
To implement any project related to
infrastructure development in the State and Local Level.
|
While providing complementary grants
the following criteria shall be taken into account:-
(a) Feasibility of the project,
(b) Project cost,
(c) Outputs or benefits to be
achieved from the project,
(d) Financial and physical capacity
or human resources for the implementation of the project, and
(e) Need and priority of the
project.
|
4
|
Special
|
To operate the specific project by
the State or Local Level
|
Special grants have any of following
objectives:-
(a) to develop and deliver basic
services like education, health and drinking water,
(b) to achieve balanced development
of inter-State or inter-local level, and
(c) to uplift or develop the class
or community discriminated economically, socially or in any other form
|
Source: IGFAA, 2074.
References:
Bahl,
Roy (2000). Intergovernmental transfers in developing and transition countries:
Principles and practice. Municipal Finance. The World Bank
OECD
(2006). Intergovernmental transfers and decentralized public spending. WP No 3.
IGFAA
(2074). Intergovernmental Fiscal Arrangement Act, 2074
