India Seeks Extension of Its Flagship Projects in Nepal

"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.