"The OAG report has called for stopping the practice of directly releasing foreign funds to DDCs, and instead recommended channelling the amount through the government."
By Anil Giri

Kathmandu, July 3 - India has sought extension from Nepal for its flagship projects worth billions of rupees where New Delhi has directly injected funds with the receiving parties not required to go through official channels.

Among Nepal's numerous beneficiaries, India is the only one to enjoy such a facility and privilege where -- under a memorandum of understanding (MoU) first signed more than a decade ago -- the Indian embassy in Kathmandu can directly fund projects less than Indian Rs.3 crore (over $500,000) for a single project on its own without any approval from the Nepal government.

According to a report published in Thursday's edition of The Kathmandu Post, the Indian embassy here made such a request very recently to Nepal's finance ministry seeking a three-year extension of the bilateral agreement that enables India to provide aid up to Indian Rs.3 crore for each project through district development committees (DDCs) in Nepal.

The then government in November 2003, for the first time, gave such special privileges to India which was renewed in June 2006, August 2009 and August 2011.

The validity of the current MoU is until Aug 5, 2014. So far, India has funded 450 such small projects across Nepal injecting billions of rupees which is often criticised in Kathmandu as being used for creating patronage and loyalty in Nepal by the Indian establishment. India does not enjoy such facilities with any other country.

Nepal Maoist parties have been seeking cancellation of the agreement with India and have often instigated China to seek a similar facility.

A senior Nepal government official told IANS that the Chinese want to fund projects directly in some northern districts of Nepal bordering China under a similar arrangement with the Nepal government.

This provision for Indian grants has been controversial as the funds are not channelled through the government's budgetary system. Politically, it has been dubbed as an 'instrument' to wield Indian influence over local communities in Nepal, said the Post report.

The Indian embassy's website states that small development projects (SDPs) are hugely popular in Nepal under which the development work carried out through the aid directly reaches the beneficiaries, and ensures direct involvement of stakeholders in the process.

Indian assistance under this programme is spent on infrastructure development and capacity development in areas of education, health, and community development.

The embassy decides which project to fund based on the proposals submitted by the DDCs through Nepal's ministry of federal affairs and local development.

As India has the discretionary powers to decide which project to fund, we have asked the Indian diplomats to revise the current system in our meetings, said a senior official of the Himlayan nation's local development ministry.

We have proposed that project funding should be based on the priorities of the government, and individuals having connection with the embassy should not be able to influence the funding process.

The 51st annual report of the Office of the Auditor General (OAG) of Nepal also mentioned that the local development ministry has been releasing the aid received from the Indian embassy under SDP to construct school buildings and roads without incorporating it in the annual budget.

The Financial Working Procedure Act lays down that cash and goods received from friendly nations and international institutions should be incorporated in the annual budget.

The OAG report has called for stopping the practice of directly releasing foreign funds to DDCs, and instead recommended channelling the amount through the government.

(Anil Giri can be contacted at [email protected])


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