M I M A M S H A

Articles | Fiscal Law

Role of National Planning Commission in Budget

Krishna Tamang

Krishna Tamang

Nepal Law Campus

March 26, 2026
min read
1.    INTRODUCTION
The Planning Commission is an important body that plays a key role in making economic policies and preparing development plans for a country. It acts as a bridge between the government and different sectors of the economy, making sure resources are properly distributed and development goals are achieved . In budgeting, the Planning Commission gives important guidance and recommendations to help the government create effective financial plans that support long-term development.
The primary role of a Planning Commission is to evaluate the nation’s resources, determine key areas for development, and recommend strategies to promote economic growth. By studying data and patterns, the Commission assists in making well-informed decisions on the allocation of public funds. This helps ensure that the budget addresses both short-term requirements and long-term sustainable development objectives. 
Planning Commissions typically work on both short-term and long-term planning. They develop annual plans, five-year plans, and perspective plans that set the course for economic development. These plans become the foundation for budget preparation, as they identify specific projects, programs, and sectors that require funding. The Commission's role is therefore essential in linking policy objectives with financial allocations.
2.    PLANNING COMMISSION IN NEPAL: STRUCTURE AND FUNCTIONS
Historical Background 
Nepal’s National Planning Commission (NPC) was formed in 1956 AD to promote a planned system of national development. Its creation introduced organized and systematic development planning in the country through the preparation and supervision of periodic plans. From the beginning, it has served as the main body responsible for setting development priorities and guiding budget decisions.

Conceptual Framework: Planning Commission and Budget

The Planning Commission is generally regarded as a central institution responsible for preparing development plans and advising the government on economic and social policies. Its main objective is to allocate limited resources efficiently and equitably to achieve long-term development goals.
Similarly, the budget serves to implement these plans by distributing financial resources to specific programs and projects. Therefore, the relationship between planning and budgeting is complementary. While plans set direction and priorities, the budget provides the means for implementation. In countries like Nepal, where development challenges are complex and resources are limited, this relationship becomes particularly important.

3.    Functions and Roles of Planning Commission in Budget
The National Planning Commission performs several important functions and plays multiple roles that directly affect budget preparation and implementation. These can be understood in the following manner:

I. Planning Functions Related to the Budget

1.    Developing Plans for the Budget Framework:
The National Planning Commission (NPC) prepares periodic plans, including annual plans, five-year plans, and long-term perspective plans. These plans determine development priorities and resource requirements, forming the foundation for budget allocation. Periodic plans outline sectoral priorities, set development targets, and estimate the financial resources needed to achieve them. For example, the five-year plan provides a medium-term framework to guide annual budget preparation, while the annual plan specifies which projects and programs should receive funding in a given fiscal year. Without these plans, the Ministry of Finance would lack a clear structure for preparing the development budget.

2.    Providing Policy Guidance on Budget Priorities:
The Planning Commission serves as the principal advisory body to the government on budget-related matters concerning development expenditure. It provides expert advice on which sectors should receive priority in budget allocation, how much should be allocated to different sectors, and what types of projects should be funded. When the government prepares the budget, the NPC's recommendations on priorities are given significant weight. This ensures that the budget reflects strategic development objectives rather than being driven solely by political pressures or short-term considerations.

II. Resource Assessment and Budget Limit functions

3.    Resource Assessment for Budget Preparation: 
The Commission evaluates available resources and suggests ways to mobilize additional resources for development. This assessment helps the Ministry of Finance in determining realistic budget targets. The NPC conducts comprehensive analysis of domestic revenue potential, foreign aid commitments, loan possibilities, and other sources of development finance. By providing realistic estimates of resource availability, the Commission ensures that the budget is based on achievable targets rather than unrealistic projections. This function prevents the government from committing to expenditures that cannot be financed, thereby maintaining fiscal discipline.

4.    Setting Development Budget Limits:
The NPC sets development budget limits for each ministry and sector based on the priorities outlined in the periodic plans. This is one of the Commission’s most important budget-related tasks. The NPC examines sectoral needs, reviews how ministries have used their previous budgets, and decides how much development funding each ministry should get. These limits are shared with ministries before they prepare their detailed budget proposals. Setting these budget limits ensures that the total development budget stays within affordable levels while making sure priority sectors receive sufficient resources. Without these limits, ministries might request unrealistic amounts that exceed the available funds.

5.    Determining Sectoral Allocation:
Besides setting limits for each ministry, the NPC decides how the development budget should be shared among sectors like roads, farming, schools, health, and industry. This sharing is based on priorities in the plans and follows the government’s development strategy. The Commission makes sure the budget is spread fairly across all sectors, not just focused on a few.

III. Project Appraisal and Budget Inclusion Functions

6.    Project Evaluation and Approval for Budget Inclusion: 
The NPC reviews and approves major development projects before they are included in the budget. This ensures that only viable and priority projects receive funding. Every ministry and department must submit their project proposals to the NPC for technical and economic evaluation. The Commission examines the feasibility, cost-benefit analysis, implementation capacity, and alignment with national priorities of each project. Projects that do not meet the evaluation criteria are rejected or sent back for revision. This gate-keeping function ensures that scarce development resources are allocated to projects that have the highest potential for positive impact. Only projects approved by the NPC can be included in the budget.

7.    Reviewing and Approving Red Book Proposals: 
All development projects to be included in the national budget must be listed in what is commonly called the "Red Book" or annual development program. The NPC reviews these proposals to ensure they are well-designed, properly costed, and aligned with national development priorities. Projects that do not meet the criteria are excluded from the Red Book, effectively preventing them from receiving budget allocation. This review process involves checking whether projects have proper designs, realistic cost estimates, clear implementation schedules, and adequate institutional arrangements for execution. The Red Book, once approved by the NPC, forms the basis for the development budget presented to Parliament.

8.    Prioritizing Projects Within Budget Limits:
When the total cost of proposed projects exceeds available resources, the NPC must decide which projects should be funded and which should be postponed. Prioritization is based on criteria such as alignment with plan priorities, readiness for implementation, past performance, regional balance, and expected development impact. The Commission’s decisions directly determine which projects are included in the final budget.

IV. Budget Coordination Functions

9.    Coordinating Budget Proposals Across Ministries: 
The Commission coordinates with various ministries and departments to align their budget proposals with national development priorities. This prevents duplication and ensures efficient use of resources. The NPC organizes regular consultation meetings with line ministries to discuss their budget requirements and proposed projects. Through this coordination process, the Commission identifies overlapping projects and ensures that different ministries do not propose similar projects for the same purpose or location. This coordination is essential to avoid wasteful duplication of resources in the budget.

10.    Coordinating Development Budget with Recurrent Budget: 
While the NPC focuses primarily on the development budget, it also coordinates with the Ministry of Finance to ensure that the development budget is consistent with the recurrent budget. Many development projects require recurrent expenditure for operation and maintenance after completion. The Commission ensures that adequate provision is made in the recurrent budget for operating completed projects. This coordination prevents the problem of creating assets through the development budget that cannot be maintained due to lack of recurrent budget provision.

11.    Federal Budget Coordination: 
In the context of Nepal's federal structure, the NPC plays an important role in coordinating development budgets across federal, provincial, and local levels of government. The Commission works to ensure that budget allocations at different levels are mutually supportive and that resources are allocated efficiently across the federal system. This includes coordinating conditional grants from the federal government to provincial and local governments, ensuring that these grants support nationally agreed priorities while respecting provincial and local autonomy.

V. Budget Monitoring and Adjustment Functions

12.    Monitoring Budget Utilization:
The NPC monitors how ministries utilize their allocated development budgets throughout the fiscal year¹⁷. The Commission tracks both financial progress (how much budget has been spent) and physical progress (how much work has been completed). This monitoring helps identify ministries that are not able to utilize their budgets effectively. Based on monitoring findings, the Commission may recommend reallocating budget from slow-spending ministries to those with better implementation capacity. This monitoring function helps improve overall budget execution and ensures that allocated resources are actually used for development purposes.

13.    Mid-Year Budget Review:
The Commission conducts mid-year reviews of budget implementation and recommends adjustments if necessary. If certain projects are facing implementation problems, the NPC may recommend reducing their budget allocation and reallocating resources to better-performing projects. This flexibility allows the government to respond to changing circumstances during the fiscal year rather than being locked into the original budget allocation.

14.    Providing Input for Budget Revisions: 
When the government needs to revise the budget during the fiscal year, the NPC provides recommendations on how the development budget should be adjusted. The Commission ensures that budget revisions maintain focus on priority projects and do not undermine the overall development strategy.

VI. Budget Analysis and Recommendation Functions

15.    Analyzing Budget Execution Performance: 
At the end of each fiscal year, the NPC analyzes the performance of the development budget. This includes examining which projects were completed, which faced delays, how much of the allocated budget was actually spent, and what results were achieved. This analysis feeds into the preparation of the next year's budget, helping improve budget planning and execution. The Commission identifies systemic problems in budget implementation and recommends reforms to address these issues.

16.    Recommending Budget System Improvements: 
Based on its experience in budget preparation and monitoring, the NPC makes recommendations for improving the budget system. This may include suggestions for better budget classification, improved project appraisal procedures, more effective monitoring mechanisms, or changes in budget procedures to enhance efficiency and accountability.

4.    Comparative Analysis

Comparison with Developing Nations 
Developing countries often feature centralized planning bodies to address resource constraints, inequality, and growth imperatives, but their roles vary from executive to advisory. Nepal's NPC stands out for its direct budgetary involvement, while others focus more on strategic oversight or project appraisal. Below, we compare with key examples: India (NITI Aayog), South Africa (NPC), China (NDRC), and Bangladesh (Planning Commission).

India: NITI Aayog 
India’s NITI Aayog was created in 2015 to replace the old Planning Commission. It works as the main policy think tank of the government and supports economic development and cooperation between the central government and states. It also helps in planning and monitoring the Sustainable Development Goals (SDGs) and promotes competition among states. 
Unlike Nepal’s NPC, NITI Aayog does not decide budget limits or allocate funds. These tasks are handled by India’s Ministry of Finance. NITI Aayog mainly focuses on long-term planning, such as Vision 2047, policy research, and project-based studies. Both Nepal and India use a bottom-up approach by consulting states or local governments, but India’s system is more advisory and decentralized.
Best practice alignment : Nepal can learn from India’s use of data and competition between states to improve efficiency in its federal system.

South Africa: National Planning Commission (NPC) 
South Africa’s National Planning Commission was set up in 2010 under the President’s Office. Its main job is to prepare long-term development plans, such as the National Development Plan (NDP) 2030, and to monitor progress in reducing poverty and inequality.
The Commission influences the budget only indirectly by guiding sector plans and the Medium-Term Expenditure Framework. The actual annual budget is prepared by the National Treasury. Compared to Nepal’s NPC, which directly sets budget ceilings and includes projects in the budget, South Africa’s Commission focuses more on analysis, public consultation, and long-term monitoring.
Best practice: South Africa’s strong system of long-term monitoring can help Nepal improve follow-up and evaluation after budgets are approved.

China: National Development and Reform Commission (NDRC) 
China’s National Development and Reform Commission is a very powerful planning body, often called a “super ministry.” It prepares and implements national economic and social development plans, including long-term, medium-term, and yearly plans. It also manages major investments, industrial policies, and overseas investments. 
Unlike Nepal’s NPC, which mainly advises and coordinates, China’s NDRC has direct executive power over resource allocation and works closely with fiscal and monetary policies. While both countries link planning to national goals, China’s system is highly centralized and top-down, whereas Nepal’s system is federal and more inclusive.
Best practice: China’s strong coordination in industrial policy and investment planning can offer ideas for better economic management.

Bangladesh: Planning Commission 
Bangladesh’s Planning Commission is responsible for preparing short- and medium-term plans within a long-term vision. It also prepares the Annual Development Programme (ADP), reviews development projects, and links plans with the national budget prepared by the Finance Ministry. 
Like Nepal’s NPC, Bangladesh’s Planning Commission works on sector planning and coordination. However, it mainly focuses on development spending rather than setting overall budget limits. One major problem is that targets are sometimes too ambitious, which causes problems during implementation. best practice: Bangladesh’s system of project review and plan–budget linking can help Nepal reduce delays and improve project feasibility.

Comparison with Developed Nations 
Developed nations typically favor decentralized, market-driven approaches over centralized commissions, focusing on strategic sectors like innovation and security. Nepal's comprehensive role contrasts with this, but offers lessons in agility for resource-scarce contexts.

United States: Decentralized Planning (e.g., Office of Management and Budget - OMB) 
The U.S. does not have a single national planning commission like Nepal. Planning responsibilities are divided among multiple agencies. The OMB coordinates the federal budget, preparing the President’s budget proposal using agency submissions and economic forecasts. However, it does not create long-term comprehensive plans like Nepal’s periodic plans. National strategies, such as the National Security Strategy, guide foreign policy, while economic planning mainly relies on the market and advisory bodies like the Council of Economic Advisers.
Key difference: The U.S. agencies do not allocate resources directly like Nepal’s NPC. Budget discipline is maintained through Congressional oversight.
best practice: Using evidence-based budgeting and working closely with the private sector can help Nepal diversify resources and funding sources.

Japan: Cabinet Office and Historical Economic Planning Agency 
Japan’s planning system evolved from the post-war Economic Planning Agency to the current Cabinet Office, which focuses on medium-term economic and fiscal policies as well as innovation strategies. It coordinates budgets with different ministries and promotes public-private partnerships and a merit-based bureaucracy.
Japan’s approach is similar to Nepal in long-term visioning, but it places more focus on technology and innovation (e.g., through agencies like the NSTC).

South Korea: Ministry of Economy and Finance (Former Economic Planning Board)
South Korea originally had a centralized Economic Planning Board, but now the Ministry of Economy and Finance handles planning and budgeting, with agencies like the NSTC overseeing science and technology innovation. The country focuses on export-led growth and international cooperation , especially with countries like the U.S. and Japan.
Key difference: South Korea places less emphasis on regional or federal inputs and more on geopolitical and international alignment.
Conclusion
Nepal's NPC is unique among developing countries for its strong role in budgeting and including federal levels. It can learn from China's coordination power, India's innovation and competition, South Africa's monitoring, and Bangladesh's project links. From developed countries, ideas like data-driven decisions, private partnerships, and innovation focus can help.
By mixing these ideas, Nepal can make its planning more effective, flexible, and successful in its federal system.


 

About the Authors

Krishna Tamang

Krishna Tamang

Undergraduate law student at Nepal law campus with a keen interest in constitutional law and social justice. Passionate about legal research, advocacy, and rights-based reforms.

View all posts by Krishna Tamang

You Might Also Like

Although Nepal has been a major recipient of foreign aid for decades, development outcomes remain uneven and limited. Why has increased aid not trans…

By
Suveksha Panta

Introduction The Right to Food in Nepal has evolved from a moral and developmental concern into a constitutionally guaranteed and judicially enforc…

By
Rubina Rai

Abstract This paper critically analyzes the constitutional provisions and practical challenges surrounding the appointment of ministers and the pr…

By
Diksha Jha, Dikshya Singh Thakuri, Samikxhya Khadka

General Concept of Emergency The concept of Emergency refers to the effect on National Security, Sovereignty, war, armed conflict, and various dim…

By
Shruti Timsina