BALOCHISTAN FOR DISTRIBUTION OF RESOURCES ON MULTIPLE CRITERIA

SYED FAZL-E-HAIDER
Sep 07 - 13, 2009

Last month, the National Finance Commission (NFC) finalized in its meeting the terms of reference for the second day's crucial meeting after Punjab expressed its willingness to accept distribution of resources on the basis of multiple criteria, instead of only population. Balochistan urged in the meeting to base the next award on various indicators, mainly poverty and area. The province insisted on payment of arrears on gas royalty and urged to revise the vertical transfer in favor of provinces.

The province discards population as the sole basis for distribution of revenues in the NFC declaring that no federation in the world follows population criterion for distribution of revenues among the federating units except Pakistan. The province has prepared at least two tentative proposals for horizontal distribution on the basis of population, human development index (HDI), backwardness, fiscal effort, inverse population density (IPD), and revenue generation.

In its tentative proposals, Balochistan has demanded that provincial share in the divisible pool should be increased to 55 percent and collection charge of 5 percent deducted by the federal government be reduced to actual. It demands a broad-based horizontal distribution formula taking IPD and backwardness into account. The province has prepared two tentative proposals for horizontal distribution of resources, according to Balochistan's official document on the sixth NFC award.

In the first proposal, the population (per capita equalization) has been given 75 percent weightage, 10 per cent to the HDI/ backwardness (horizontal equalization), 5 per cent to the fiscal effort (own revenue/total expenditure) that provinces make to increase self-generation of resources and cut down on expenditure, 5 per cent to the revenue collection (contribution to divisible pool), 5 per cent to IPD (cost of services and development equalization).

Under the first proposal, the province will get a share of 10.42 percent plus Rs.10 billion per year grant-in-aid, against 8.73 percent for FY 1997-98 including subventions and 7.47 percent for FY 2003-04 including subventions. This will yield Rs. 20 billion per year (100 billion for five years) above 8 percent benchmark.

In the second proposal, the population (per capita equalization) has been given 75 percent weightage, 7.5 per cent to the HDI/ backwardness (horizontal equalization), 7.5 per cent to the fiscal effort (own revenue/total expenditure), 5 per cent to the revenue collection (contribution to divisible pool), 5 per cent to IPD (cost of services and development equalization). Under the second proposal, the province will get a share of 12.07 percent (no grant) that will yield about Rs. 20 billion annually (100 billion for five years) above the 8 percent benchmark.

In the fiscal federalism, the horizontal imbalance arises from disparities in capacities and needs of provinces and in the relative cost of development and provision of public services. The province is striving for a broad-based horizontal distribution formula taking IPD and backwardness into account.

The province has been demanding that IPD be made a permanent criterion and proposes due weightage of IPD in the distribution of resources among the federating units. The ratio of area and population is called IPD, which is an economic parameter for equalization of provision of public services and development per capita. As the area increases, per capita cost of development and providing public services also increases. As the population decreases, per capita cost of development and providing public services also increases. Low population density and vast area multiply the per capita cost of development and provision of public services in Balochistan.

Balochistan is the least populous and the country's largest province with respect to area. Per capita cost of providing public services in the province is about three times higher than that in other provinces. The basis for distribution of divisible revenues should be cost of per capita of providing public services and not cash per capita. With an area that constitutes almost 44 per cent of entire country and having a population of about 7.5 million which is merely 5.11 per cent, the Balochistan's rate of delivery of public services is calculated at 18.8 if Punjab's rate is taken as one, NWFP 1.5 and Sindh 1.6.

There is a dire need to address the longstanding issue of Gas Development Surcharge (GDS), which is the only major source of income for the province. The present division of revenue from GDS is unjust and unfair. Balochistan's position is that investment at Sui in Bugti tribal area was made in 1952 when the investment was not as high as it is in Sindh and Punjab. The differences between the average wellhead cost and average sale price of Sui Gas should be the highest. Similarly, the province's share in the gas revenue should also be the highest.

In 1991 NFC award it was decided to divide the income from GDS among the provinces on the basis of the gas produced from the concerned province. Unfortunately there was little increase in the gas production in the province while the overall system was on gradual expansion. Therefore the income of the province under this system constantly decreased over the years. There has been a demand for increase in the wellhead price of the gas in Balochistan bringing it at par with the Sindh and the Punjab.

Former Balochistan government had proposed another formula to the federal government for resolving the sixth NFC Award issue, demanding the national revenue be divided on an equal basis among all provinces. According to the proposal, 50 percent of the NFC of a province should be based on scattered population, 10 percent on land share, 10 percent on backwardness, 10 percent on revenue collection and 10 percent on an equal basis. The factors like scattered population, land, backwardness, and revenue collection indicate socio-economic conditions prevailing in province.

In other words, the proposal had demanded a fiscal disbursement formula based on socio-economic indicators. On the pattern of Germany, the 'development needs' as the criterion for distributing funds among the provinces was emphasized in the proposal. The socio-economic indicators reveal these needs.

The socio-economic indicators based formula for distribution of resources among the provinces is in consonance with real spirit of the 1973 Constitution that provides for bringing the undeveloped or least developed regions at par with the developed regions of the country. In other words, the constitution disallows and rejects any discrimination, injustice or negligence vis--vis development of the whole country. The proposed basis for NFC Award, according to some experts, would allow the more developed to receive less and least developed to get more till such time that inequalities are wiped out.