Sep 07 - 13, 2009

Traditionally, all National Finance Commission (NFC) awards have been imposed by the central government mainly due to the reasons that provinces could not develop consensus in the past over distribution of resources.

In past, due attention could not be paid vis--vis fair and just distribution of fiscal resources among the federating units. Despite the expiry of its five-year term in 2002, the 1997 NFC award remained in force with some minor amendments introduced unilaterally by the then President Pervez Musharraf.

The decision that has to be taken in 2002 lingered on until 2006 when President General Musharraf announced an interim award. Under the temporary award, the provincial shares in the divisible pool were raised to 41.5 percent in fiscal 2006-07 and a gradual increase to 46.25 percent by 2010-11 was envisaged. The provinces' demands were partially fulfilled by increasing subventions or grants-in-aid for them. A permanent award is, however, still awaited.

The NFC is a constitutional body and all its decision should have mandate of all parties concerned. The formula Musharraf amended under Article 160 (6) of the Constitution mainly increased subvention amount for the provinces, enabling them to obtain additional amount for catering their financial needs. The smaller provinces Balochistan, Sindh and NWFP were not so much happy with the formula presented by Pervez Musharraf because they wanted to increase their share in the federal divisible pool (FDP) and accommodation of their viewpoints by giving weightage to indicators of revenue generation, poverty, and inverse population density. The main complaint of the provinces was again on the adoption of single criteria of population for distributing the financial resources among the provinces.

Now when the PPP led coalition government is running the state affairs at the centre, besides having coalition governments in the four provinces, there are high expectations that the democratic government would be able to develop consensus.

A meeting of NFC Award was held recently in Islamabad with Finance Minister Shaukat Tarin in the chair. The meeting agreed agenda for the National Finance Commission Award that is expected to be finalized soon. The meeting was also attended by all four provincial finance ministers, and economic analysts including members of the commission, Abdul Ghafoor Mirza (Punjab), Dr. Kaiser Bengali (Sindh), Senator Haji Muhammad Adeel (NWFP), and Dr.Gulfaraz Ahmad (Balochistan).

Now meetings of the NFC would also be held in small provinces starting from Quetta to Peshawar to Karachi and Lahore. The final meeting to decide the NFC award would be held in the finance ministry in the capital.

The central government's stand is that resources should be distributed under formula of population and revenue collection. However, leadership of the Pakistan Muslim League-Nawaz (PML-N) has shown flexibility on the Punjab government's stance in order to please small provinces, which have expressed their dissatisfactions over distribution of resources on single criterion.

Sources in the PML-N told this scribe that the Punjab government would have no objection if formula for NFC Award is reviewed with the consensus of the provincial governments and the federation.

"The Punjab government and PML-N would support every formula which could satisfy all stockholders and further strengthen unity among the federating units and the communities of the country," the sources said.

Fiscal decentralization envisaged under the NFC is an issue of prime national importance and the government must understand the significance and principles of fiscal federalism. The unfair distribution of monetary assets is one of the foremost causes for the political and social unrest in the deprived provinces, experts told this correspondent.

According to them, the NFC Award is the distribution of financial resources among the provinces of Pakistan by the federal government. Certain types of taxes including income tax, general sales tax, wealth tax, and custom duties etc., collected in each province are pooled and then redistributed according to the NFC formula.

Most tax receipts are collected from Punjab and Sindh. They said the provinces have raised their concerns over the unfair (both vertical and horizontal) distributions and the deliberate delay in working out a resource distribution formula by the central government.

According to experts, the NFC is linked to two major issues that have to be addressed including the vertical and horizontal distribution of financial resources. Vertical imbalance arises from the centralisation of revenue collection with the federal government and excessive dependence of provincial governments on federal transfers. However, the disproportionate horizontal distribution of resources on the basis of population results in disparities in the capacities and needs of the provinces and in the relative costs of development and the provision of public services.

According to Finance Minister Shaukat Tarin, the government is committed to remove sense of deprivation from the provinces, as "It is our wish to care the small provinces while distributing the award".

It was federation's first and foremost duty to remove the sense of deprivation prevailing among the people of small provinces. The sense of deprivation can only be removed when the larger provinces will show their open heartedness while taking their due share in distribution of NFC Award.

Financial experts are of the view that the government must broaden resource distribution base by encompassing disparities like human development index, inverse population density, and revenue generation in a particular province in factors that determine how much money will go to a federating unit.

The size of federal divisible pool needs to be broadened by injecting more money into it out of the federal government share in total revenue collection. Through this, particular needs of province could be met without objection of others, they said.

According to Dr Shahid Kardar, the government needs to ensure availability of maximum funds for provinces in vertical distribution. He also advocated the addition of backwardness, revenue generation, inverse population density along with population in factors to determine horizontal distribution (among provinces) to make new NFC award acceptable to all federating units. The distribution of funds from the center to provinces and among themselves has long been a threat to a 'fragile' provincial harmony in Pakistan.

He said that a permanent NFC Award according to the aspirations of provinces was imperative to keep the federation united and help it grow stronger. Other experts called for changing the criteria of NFC award, which should incorporate the backwardness, and poverty of the province, instead of only population of the provinces. The uplift of the people is impossible until the provinces are given control of their resources. On the other hand, civil society representatives are of the view that if the newly elected government genuinely wants to redress the grievances of the smaller provinces and get rid of the unjust policies of past regimes, it should come up with a universally accepted and justified policy of resource distribution.

As signatories of the Charter of Democracy, the PPP and the PML-N are morally duty-bound to announce a fresh, justified and consensus powered NFC award, they insisted.