Allocations for different types of local units and their share of costs are yet to be settled.

The government has agreed to accept an Indian proposal to increase the budget for ‘small development projects’ to be implemented by local units from the current Rs50 million to Rs200 million.

The Indian side had initially proposed to jack up the budget to Rs240 million, but the Ministry of Finance had scaled it down by Rs40 million. Nepal suggested the reduction citing a financial burden as, under existing arrangements, it has to bear 20 percent of project costs, according to officials.

Thursday’s Cabinet meeting agreed in principle to accept the Indian proposal, with some minor changes, a minister said.

Details of how much a metropolitan city, a sub-metropolitan city, a municipality and a rural municipality will receive under the small development projects scheme and how much each local unit will contribute to the project cost is yet to be settled. It will be decided in consultations with relevant ministries, the minister added.

“The higher cap for such a project is Rs200 million,” the minister said, adding, “each local body must ensure that any small development project to be funded under the scheme does not exceed this threshold.”

Some ministers at the cabinet meeting suggested different budget limits for different types of local units.

“As rural municipalities operate with smaller budgets compared to metropolitan cities, sub-metropolitan cities, and municipalities, the budget limit for small projects in rural municipalities should be fixed at Rs50 million,” the minister said.

To bolster his argument, the minister said that local units getting the Indian grant should also contribute a portion of project cost from their own resources, and it will be difficult for many rural municipalities operating on small budgets to make such contributions to high-cost projects.

Earlier, Finance Minister Prakash Sharan Mahat confirmed to the Post that his ministry had given its nod to increase the grant disbursed under the Indian small development project scheme. A memorandum of understanding on the increase will soon be signed, said Mahat.

India had initially proposed a grant of IRs150 million or NRs240 million for each project, but before tabling the proposal, the Ministry of Finance has trimmed it to Rs200 million citing the requirement for contributions, according to finance ministry sources.

The Indian side, during Prime Minister Pushpa Kamal Dahal’s India visit in May-June, had expressed its desire to significantly increase the budget for the small development project scheme in Nepal.

According to a bilateral arrangement, the scheme, which was launched in 2003, had to be renewed every three years. But after the renewal in 2014, no projects were executed until 2017. The scheme was extended in 2017, and later again in 2020, with some amendments.

According to the Ministry of Urban Development, with the change in the country’s governance system, the responsibility for project implementation was handed over to district coordination committees.

“As the Constitution of Nepal 2015 barred direct donations of funds to the local level, there was a hiatus in project implementation. The Cabinet decision of December 23, 2019 approved the new implementation modality and appointed the implementing agencies, paving the way for the resumption of project implementation,” stated the ministry.

As per the new modality, the Ministry of Federal Affairs and General Administration (MoFAGA) acts as the coordinating agency between local governments and the Nepal-based Indian embassy. The project proposals that the MoFAGA receives from local governments are sent to the Ministry of Finance, which forwards them to the Indian embassy for implementation.

“After this, a tripartite agreement has to be signed among the MoFAGA, Indian embassy, and concerned local units for project implementation. The existing modality stipulated that the local government should bear 20 percent of the total project cost,” said the urban development ministry.

“With the new budgetary arrangement, the scope of the projects will increase. The cost of construction materials and worker wages have gone up significantly in recent years, so the Indian decision to increase the budget is practical too,” an official at the Finance Ministry added.

India has been building schools and hospitals and other small projects under the scheme. The proposed adjustments are expected to address resource shortfalls for the execution of internal infrastructure projects or for acquiring necessary equipment for the projects, officials said.

Formerly known as small development project scheme and launched in November 2003, the Indian side has rebranded it as High-impact Community Development Projects (HICDPs).

HICDPs are short-gestation projects with a maximum financial outlay of NRs50 million, according to the Indian embassy website.

Since 2003, over 535 HICDPs have been taken up by the government of India of which 476 have been completed while 59 are ongoing, and the total cost of all projects is around NPR 11.55 billion, the website said.