Constitution

(c) समाजवाद उन्मुख अर्थव्यवस्था (Socialism Oriented Economy)

Article 51(b) of the Constitution of Nepal directs the State to develop a socialism-oriented economy based on social justice and equality, so Nepal has adopted a socialism-oriented economy.

1. Structure of the State

Article 56 of the Constitution of Nepal (2072) provides a federal structure with three tiers of government:

• Federation (the central level), with Federal Parliament, the Council of Ministers and federal courts;
• 7 Provinces (Koshi, Madhesh, Bagmati, Gandaki, Lumbini, Karnali and Sudurpashchim), each with a Provincial Assembly and Government;
• 753 Local Levels (metropolitan cities, sub-metropolitan cities, municipalities and rural municipalities), each with its own Assembly and executive. The village (gaunpalika) and town (nagarpalika) executive is headed by the Chairperson/Mayor.

Article 56 also recognises Special, Protected and Autonomous Areas. Article 56(5) states that state power is exercised through the Constitution and laws, and each level exercises power as provided.

2. Distribution of State Power

State power is distributed through the Schedules:

Residual powers (those not listed) belong to the Federation (Article 58).

3. Provisions for interrelations between Federation, Province and Local Level

Part 20 (Articles 232-235) of the Constitution sets the framework of intergovernmental relations.

1. Principles of relations (Article 232). Relations rest on cooperation, co-existence and coordination. The Federation is to maintain relations with Provinces and Local Levels, and Provinces with each other and with Local Levels, in these principles.
2. Federal law and cooperation. The Federation may give directives to the Provinces on matters of national importance and to protect the national unity, and Provinces and Local Levels must follow federal laws. The Federation is obliged to provide the necessary support, and Provinces must coordinate with local governments.
3. Coordination between Provinces (Article 233). Provinces may resolve disputes among themselves through mutual consultation, with the Federation acting as facilitator.
4. Inter-Provincial Council (Article 234). Chaired by the Prime Minister and comprising the Home Minister, Finance Minister and Chief Ministers, it settles political disputes between the Federation and Provinces and between Provinces.
5. Coordination between Federation, Provinces and Local Levels (Article 235). The Federation may enact laws to coordinate with Provinces and Local Levels, and Provincial Governments coordinate local governments within the province. The Provincial Coordination Council is chaired by the Chief Minister and includes the heads of local governments.
6. Fiscal federalism (Articles 59-60, 250). Revenue is shared through the Federation, Provinces and Local Levels, with fiscal transfers (equalisation, conditional and complementary grants, special grants) and a National Natural Resources and Fiscal Commission to recommend the distribution.
7. Mutual recognition. Judicial and administrative decisions of one level are recognised and respected by the others.

Conclusion. Nepal's federal design shares power among three tiers through the Schedules and links them with cooperation, coordination and co-existence, so that unity and local self-governance are balanced.