INTRODUCTION:
Fiscal federalism deals with the division of governmental functions and financial relations among Federal, State and Local Governments. The effectiveness of fiscal federalism depends on equitable, transparent and fair fiscal transfer among above three tiers of governments. One of the basic criteria of such fiscal transfer is ‘the service to be delivered by the State and Local Governments to the people’. The categories of these services are presented in the schedule 5, 6, 7, 8 and 9 of the Constitution of Nepal that are further elaborated in the unbundling report of the Government of Nepal adopted by the government as per the cabinet decision made on 2073/10/18. Delivery of these services require certain cost from both the governments as service provider and the people as service recipients. Hence, the costing of services delivery is necessary to determine fair and equitable resource allocation.
National Natural Resources and Fiscal Commission (NNRFC), by the provision of Article 251 of the Constitution of Nepal, is responsible to formulate a mechanism to recommend the fiscal transfer. Besides, the NNRFC aims to estimate a consolidated cost of service delivery by categories, to develop the socio-economic indicators and to calculate the basis for revenue sharing.
OBJECTIVES:
i. To identify the factors to be considered to calculate the cost of services.
ii. To devise an appropriate mechanism, including distance, accessibility, level of infrastructure development and other related factors of state and Local Governments, for costing different services.
iii. To determine composite cost of service delivery, with proper disaggregation, at State and Local Governments.
FINDINGS:
Intergovernmental fiscal transfer process is already in practice in federal Nepal. The first inter-governmental grants were allocated on FY fiscal 2074/75 evaluating minimum level of cost of services delivery. The four types of grants are provisioned in the Constitution of Nepal with fundamental indicators for their calculation on equitable and justifiable manner. Ministry of Finance (MoF) developed a framework to transfer the grants to the Local and State Governments. National Natural Resource and Fiscal Commission (NNRFC), a constitutional body, by the provision of article 251 of the Constitution of Nepal, is responsible to devise the formula and formulate a mechanism to recommend the fiscal transfer. It further aims to provide indicators to estimate a consolidated cost of services by categories for Local and State Governments for fiscal transfer.
The objectives of the study were to identify the factor to be considered to calculate the cost of services delivery, to devise an appropriate mechanism including, distance, accessibility, level of infrastructure development and other related factors of State and Local Governments for costing of different services, and to determine composite cost index of service delivery with proper disaggregation at State and Local Government.
This study mainly used the secondary data and limited field visit. Quantitative analysis was used to analyze the data received from secondary sources. Information gathered from primary source has been presented in boxes in the report. The variables associated in the cost of services deliveries were identified and multiple regression has been done.
The cost of services delivery mechanism has been categorized into two groups in both State and Local Governments viz. (a) Service Cost (b) Functional Costs. Under service costs; expenditure on staff, physical infrastructure and data handling are considered whereas, functional costs comprise expenditure made in Human Development Index, Population, Area, and Connectivity (includes road, electricity and ICT).
Geometric Mean has been carried out to estimate the State Service Delivery Cost Index (SSDCI) with Population Index (A), Density Index (B) and Composite Index of HDI and CVI (C) as SSDCI = .
While determining the Service Delivery Cost Index in Local Government, PCC has been considered as a dependent variable whereas POP, ASQ, HDI and CVI including two dummies D1 and D2 are considered as independent variables. To calculate the cost of services delivery in the local government following model has been applied.
LGSDC = PCC = α’ + β1.POP + β2.ASQ + β3.HDI + β4.CVI + β5.D1 + β6.D2 + β7.HDI.D1 + β8.HDI.D2 …………… (i)
This is per person cost requirement to the Local Government that should be estimated based on the population available in the respective Local Government.
