Purpose - The purpose of this paper is to explore how local government bodies in Nepal are empowered to play their constitutional roles and engage in activities to deliver public services at the doorsteps of the people effectively. The focus is on the institutionalisation of federalism, its implications for local governance, and capacity development of local authorities.
Design/methodology/approach - Ideas of decentralisation, governance and public management have been used to interpret findings based on qualitative research methods by key informant interviews, focus group discussions and personal observations conducted in five selected municipalities in Nepal.
Findings - The process of operationalising the power of local government bodies is more conventional and hierarchic. At the same time, the formulation and implementation of inclusive plans and budgeting are confined with certain formalities that do not necessarily allow citizens the space for voices. Federal government grants constrain fiscal jurisdiction and control over resource mobilisation. The mere preparation and administration of local government legislation and relevant by-laws have weakened the capacity of local government bodies.
Originality/value - From interpretation of first-hand data, this paper has identified the pitfalls of the federalisation process, the constraints deter the devolution of power to local bodies as well as the transformation of local governments into autonomous institutions in Nepal.

After World War II, developing societies around the world experienced a range of problems which included: economic and political crises; dysfunctional governments and institutional failures, causing excessive political pressures on public institutions; pathological disorders in bureaucracy; structural complexities in public service delivery; and rampant corruption in public resource management. In the late 1960s, several structural and pluralist approaches emerged to address institutional problems and inefficiencies in public service delivery, but these accentuated state-centrism and supported greater administrative and legislative powers among the established national political economy regimes. This not only crippled public services, but also strengthened the top-down mechanisms in decision making and bolstered upward accountability in the institutional structures. Mainly based on neoliberal ideology, 'governance', as a concept and as an application, gradually emerged and was utilised to address institutional crises, poor governing systems, economic vulnerability and ambiguities of service delivery.