FRAGILE DISTRICTS, FUTILE DECENTRALISATION-2

Dr. Harka Gurung

2. District Economics

The economic status of districts may be considered on the basis of their capacity to bear the cost of administration. This refers to the district’s revenue source vis-à-vis expenditure. Presently, most districts are dependent on the central grant even for their regular budget. Although the district is considered a crucial hierarchy in the decentralisation process, there is paucity of analysis on the economic status of districts. Available information suggests that the districts have a fragile financial base. A case study of 15 districts sampled by development regions and elevation zones shows the five-year average income of a district to be Rs. 2.9 million1 . The major sources of income were land revenue (23.6%), contract fees (19.6%), sales proceeds (9.5%) and taxes (8.2%). Over a third (36.3%) of the total income was unspecified as "others" (Table 2). There is wide income variation among DDCs according to their geographic location. That is, higher their elevation zone, lower their income. The five-year average income ranged from Rs. 0.6 million for mountain districts to Rs. 1.9 million for the hill and Rs. 6.3 million for the tarai ones (Table 2). Thus, on an average, a tarai district was 10.9 times more resourceful than a mountain district. There was also difference in major sources by elevation zone of districts. The most important sources were taxes in the mountain, contract fee/charges in the hill and land revenue in tarai districts, Next in importance were contract/fee charges in tarai, taxes in hill and land revenue in mountain districts. More than half of mountain DDC revenue was of unspecified "other" category.

The report of Local Bodies Fiscal Commission provides partial inventory of income of only 34 districts. The structure of district revenue source shows a wide divergence from that of ISD study (Table 2). Of the total revenue of Rs. 254 million for 34 sampled districts, one-third is shown as cash balance. Rent and income from sales account for 30.3 percent while the share of land revenue is only 1.7 percent.

Sample of four districts by elevation zone shows much contrast in both income source and total internal revenue. This ranges from Rs. 75,000 for Bajhang (mountain) to Rs. 21.6 million for Kailali (Tarai). Lalitpur’s income was half that of Kailali but 15 times more than that of Bhojpur (Annex A). Of the total revenue of Bajhang, half was in taxes while duty/fees and land revenue were each a quarter. Nearly two-third of Bhojpur revenue was from sales proceed. Three-quarter of Lalitpur revenue was from taxes. Kailali revenue was overwhelmingly based on sales proceeds. The contribution of land revenue to the total district revenue was progressively less important in lower elevation zones. It was about a quarter in Bajhang, 15.7 per cent in Bhojpur, 3.3 per cent in Lalitpur and 2.2 per cent in Kailali. On the other hand, nearly half of the country’s total land revenue is generated in the 18 tarai districts (Annex B). Land revenue constitutes over a fifth of the internal revenue for western inner tarai, eastern mountain, western and central hills. It has only a nominal contribution in Kathmandu Valley’s income although 12.7 per cent of total land revenue is generated there, Eastern tarai contributes one-third of the total land revenue but it constitutes only 2.3 per cent of the region’s total revenue.

In fiscal year 1998/99, the total expenditure of 32 DDCs from own source was Rs. 201 million (Table 4). The major items of expenditure were public works (28.2%) and manpower related (20.4%). Salary and allowances accounted for 20.4 per cent of the total expenditure. The expenditure source of four sample districts illustrates well the poor state of their economic situation. Most of their total expenditure is supported by the grant from the central government. The dependence on central grant for total expenditure ranged from 83.7 percent in Bardiya to 99.6 percent in Bajura (Annex C). Those for Udayapur and Gulmi were 95.4 percent and 96.1 percent respectively. Higher the elevation of the district, greater the dependency on grant. Thus, the DDCs are utterly dependent on central grant even for their district administration. Decentralisation of authority to such entities without fiscal autonomy has been an exercise in futility.

3. Regular Expenditure in Districts

Another aspect of district economics is the income and expenditure status of plethora of government offices located at the district level. The paraphernalia of government agencies has expanded vastly over the years. In 1963, the 35 districts were expanded into 75 with an additional tier of 14 zones. In 1972, four (later into five) regional centres were established with directorates of various ministries. Project activities led to establishment of more offices at the district level. As a consequence, there has been a massive increase in regular expenditure for administration in the districts. In fiscal year 1974/75, the estimated budget for district and zonal level administration was Rs.141 million. The regional breakdown of such regular expenditure was 43.5 percent for hill, 36.8 percent for tarai, 10.4 percent for mountain and 9.3 percent for inner tarai districts (Annex D). Kathmandu, Kaski, Parsa and Morang were the only four districts exceeding an annual budget of Rs. 5 million (Fig 1). Majority of district budget was in the range of Rs. 1 to 5 million. Kathmandu (Rs. 18.8 million) and Bajura (Rs. 0.4 million) represented the extreme of highest and lowest regular budget. About a quarter of the total budget was for eastern tarai. Kathmandu Valley claimed a share of 15.7 percent and central hill 13.3 percent.

By 1999/2000, such administrative expenditure had jumped to Rs.34,523 million or an increase of 245 times in 25 years (Annex D). Of the 75 districts, 44 had an expenditure range of Rs. 100 to 200 million (Fig 2). Another 19 districts had a budget range of Rs. 200 to 300 million. Kaski, Makwanpur and Morang had within the range of Rs. 300 to 460 million. Humla and Manang were the only two districts that did not exceed Rs. 100 million in regular expenditure. There was significant shift in the regional share of such expenditure. It declined for all elevation zones except the hill, which claimed two-third of the total expenditure. This was mainly due to significant increase in the share of Kathmandu Valley from 15.7 percent of 1974/75 to 58.2 percent for 1999/2000. In comparison to an average 245 times increase, the capital region administration cost increased by over 900 times. Thus, while this was the period of incessant exercise in decentralisation, the outcome was opposite, towards more centralisation.

Of the total revenue generated in 1999/2000, 55.5 percent was from hill districts (Table 5). Another 39.9 percent was from the tarai. Those from the mountain and inner Tarai was nominal. Kathmandu Valley alone contributed just over half of the total revenue. This implies concentration of activities at the centre as the capital region also claimed 58.2 percent of the total regular expenditure. Of the 13 geographic regions, only four were in surplus. These were, by volume, eastern tarai, central tarai, Kathmandu Valley and central inner tarai.

The situation is even more sombre when considered at the district level. District revenues range from Rs.1 million for Manang to Rs.21, 212 million for Kathmandu (Annex E). The average revenue for a district comes to Rs.571 million. Only nine districts exceed this average. They are, by volume ranking, Kathmandu, Parsa, Morang, Rupandehi, Chitawan, Sindhu-Palchok, Jhapa, Lalitpur and Dhanusa, mostly with customs revenue source. There is a distinct regional pattern in the volume of district revenue. None of the 15 mountain districts exceed Rs.18 million in revenue (Table 6). Conversely, none of the 18 tarai districts have less than Rs. 43 million revenue. The hill districts, except Kathmandu, are less endowed than inner tarai districts. Most hill districts have less then Rs.100 million revenue. Conversely, all tarai districts have a revenue exceeding Rs. 100 million. Of the ten districts with revenue below Rs.5 million, two are hill and eight mountain ones.

The district regular expenditure averages Rs. 460 million. It ranges from Rs.47.8 million for Manang to Rs.19, 492 million for Kathmandu (Annex E). Similar to the regional pattern of revenue, tarai districts have higher expenditure and mountain districts less. All 18 tarai districts exceed an annual expenditure of Rs.200 million (Tables 7). All 15 mountain districts have expenditure below Rs. 200 million, of which three have below Rs. 100 million. Majority of hill districts fall in the expenditure range of Rs. 100 – 200 million ranges.

Of the 75 districts, 64 are in the deficit (Annex E). Among the four districts with a deficit exceeding Rs.200 million, Doti, Surkhet and Dhankuta have regional offices (Fig.3). Twenty-nine districts have a deficit of Rs.100-150 million range. Most of these are hill and mountain districts (Table 8). Five tarai, four hill, three mountains and one inner tarai district has a deficit of less than Rs.100 million. Bara has the lowest deficit of Rs.13 million.

Only eleven out of the 75 districts, are in surplus. These include seven tarai, three hills, and one inner tarai district. Their surplus ranges from Rs.178 million for Banke to Rs.7, 676 million for Parsa (Table 9). Most of their high revenue may be attributed to customs except for Chitawan (Park revenue) and Lalitpur (excise). Another important source is excise duty as these districts, except for Sindhu-Palchok, are industrially developed. Nine of these districts also rank high in the level of development, from 1 to 11. The aberrations include Kapilvastu (28) and Sindhu-Palchok (48) with low development rank. The high revenue of Sindhu-Palchok may be attributed to customs revenue at Tatopani and that of Kapilvastu also through customs at Krishna-nagar. The obvious conclusion of the pattern of district revenue and expenditure is one of high recurrent financial burden on the government budget. Such a fiscal situation is not only unsustainable but also inhibits local autonomy.

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