Establishment of democracy at the national level alone does not ensure functional, efficient and effective democracy at the grassroots such that maximum number of citizens is directly participating in governing themselves. Decentralization of the state power is the means to achieve this goal. It not only empowers local governance institutions but by so doing also brings them closer to the people, the sovereign citizens of the state. Therefore, local self-governments are institutional arrangements that initiate, ensure and institutionalize democratic process at the grassroots. As immediate, local self-governments offer better public goods and services as these reflect, owing to relatively common aspirations, preferences and needs of the local population, the increasing tendency towards optimization of social (public) welfare function. After the restoration of democracy in Nepal, a democratic constitution was promulgated in 1991. The constitution has recognized the decentralization of authority as a means to provide maximum opportunity to people in their governance and hence enjoy the benefits of democracy and development. However, there was no constitutional provision of autonomous local governments. Furthermore, following the successful aftermath of the historic Peoples Movement of April 2006 and commencement of the peace process in the country, the Interim Constitution, 2007 has been promulgated. The Interim Constitution has made constitutional provision of autonomous local governments. This is the significant achievement in the decentralization paradigm in Nepal. There is a two tier local authority system in Nepal. The lower level consists of Village Development Committees (VDCs) and Municipalities. The second tier consists of District Development Committees (DDCs). There are altogether 75 DDCs, 3915 VDCs and 58 Municipalities. VDCs and Municipalities are formed on the basis of direct popular election, while DDCs are formed through indirect voting, their electorate consisting of all elected representatives of VDCs and municipalities. Therefore, DDCs are aggregate institutions of Village and Municipal Governments in district levels. Their main function is to coordinate the development initiatives of entire district as district governments. Following the establishment of Association of District Development Committees (ADDC/N) in 1995, a new impetus was given with collective strength of DDCs and decentralization supporters for speeding up the process toward decentralization. Eventually after 4 years of hard struggle a new Local Self-Government Act was enacted in 1999, this can be regarded as a milestone in the gradual but steady movement toward decentralization. The Act has been a means to uplift the state of decentralization in Nepal from the delegation/deconcentration phase, paving the way for eventual devolution of state authority to Local Government in accordance with subsidiay principle in governance.