Few constitutional experiments in Asia are as ambitious as Nepal's federalism. The 2015 constitution dissolved a historically centralised state into seven provinces and 753 local governments, promising that decisions and resources would move closer to citizens. A decade on, federalism has transformed everyday governance, bringing elected municipalities into every corner of the country, while also generating persistent disputes over money, powers and provincial identity. This explainer, based on published reporting, examines the challenges that remain unresolved.

The stakes are larger than administrative design. Federalism was a core demand of movements representing Madhesis, indigenous nationalities and other communities that experienced the Kathmandu-centred state as distant and exclusionary. Its success or failure therefore measures whether the republic kept one of its founding promises. Supporters argue that local services, representation and development planning have visibly improved. Critics argue that three tiers of government have multiplied cost and confusion without commensurate authority. Both claims contain evidence, and separating them requires looking level by level.

Building Three Tiers at Once

Nepal attempted something institutionally demanding: creating provinces that had never existed, empowering hundreds of new municipalities, and reassigning staff, assets and responsibilities, all while national politics remained unstable. Provinces were initially numbered rather than named, and the politics of identity followed them into existence. All seven provinces were eventually named by 2023, some after years of dispute, and several provincial capitals were contested. Naming a province sounds symbolic, but in Nepal it encodes whose language, geography and history the new state recognises, which is why the arguments were so prolonged.

Local governments proved the most immediately tangible tier. Mayors, ward chairs and councils took responsibility for services residents encounter daily, and local elections drew intense competition. Capacity varied enormously, however, between well-resourced cities and remote rural municipalities facing shortages of engineers, accountants and administrators. The constitution assigned ambitious functions, but skilled staff and systems did not arrive at the same speed as responsibilities. That gap between mandate and capacity is the recurring theme of federalism's first decade, cited by auditors, mayors and citizens alike.

Money: The Unfinished Fiscal Settlement

Fiscal federalism remains disputed between tiers, and it may be the system's most consequential weakness. Provinces and municipalities depend heavily on transfers from the centre, while their own revenue sources are narrow and politically sensitive. Disagreements recur over how shared revenues are divided, how conditional grants restrict local priorities, and whether the centre uses funding conditions to retain control it formally surrendered. Provincial governments, caught between a powerful centre and assertive municipalities, have sometimes struggled to define an indispensable role for themselves.

The practical effects reach citizens directly. Projects stall when tiers dispute responsibility for roads, hospitals or schools that span jurisdictions. Businesses face overlapping demands and unclear licensing. Development planning can duplicate effort, with each tier announcing similar schemes. Economists cited in published analysis generally argue that the remedy is not recentralisation but clarity: predictable transfer formulas, broader and better-administered local revenue, and transparent data on who spends what. Federal systems elsewhere took decades to settle these questions, though that comparison offers limited comfort to a mayor trying to complete this year's budget.

Federalism is not a structure Nepal finished building in 2015; it is a negotiation the constitution scheduled to continue indefinitely.

Concurrent Powers and the Blame Problem

The constitution distributes powers through exclusive and concurrent lists, a design that shares authority over areas such as education, health and infrastructure. In practice, concurrency without coordination produces the blame problem: when a service fails, each tier can plausibly point to another. Laws needed to operationalise shared powers have been delayed or contested, and civil servants have faced uncertainty about which government they ultimately serve. Police adjustment, education legislation and public-service frameworks have all featured in published disputes between Kathmandu and the provinces.

Coordination mechanisms exist but have been used inconsistently. Intergovernmental councils can resolve disputes before they harden, yet meetings have at times been postponed amid national political crises, reinforcing provincial complaints that federalism is honoured when convenient. Courts have been drawn into jurisdictional questions, which clarifies law but slowly. A maturing federation would move conflict from rhetoric and litigation into routine negotiation, with published agreements and deadlines. Nepal's institutions contain the forms for that maturity; political incentives have not always rewarded using them.

Federalism and Inclusion

Federalism's defenders return, rightly, to representation. Provincial assemblies and local councils brought government closer to communities and created offices through which women, Dalits, Madhesis, indigenous nationalities and other groups exercise authority at scale. For regions that felt ruled from a distant capital, electing a provincial government changed the psychology of the state even where material delivery lagged. Dismissing federalism as merely expensive overlooks that democratic value, just as celebrating representation alone overlooks empty treasuries and unfinished laws.

The inclusion test is nevertheless ongoing. Provincial boundaries and names satisfied some identity claims and disappointed others, and demands for recognition have not ended. Marginalised groups can still find themselves minorities within provinces as they were within the unitary state. Federalism redistributes the arenas in which inclusion is contested rather than settling the contest. Its long-run legitimacy will depend on whether citizens in every tier experience fair treatment and competent services, because an identity recognised in a constitution but frustrated at a local office will not feel recognised for long.

Reform Without Reversal

Debate about federalism sometimes slides toward questioning its existence, especially when national politics is turbulent and provincial governments appear weak. The more productive argument, and the one most specialists in published analysis advance, concerns completion: settle fiscal rules, pass delayed framework laws, build provincial and local capacity, and make coordination bodies meet and publish decisions. Nepal chose federalism to hold a diverse country together democratically. Half-building such a system and then judging it for incompleteness risks the worst of both worlds.