DISTRIBUTION OF RESOURCES - A BONE OF CONTENTION

SHAMSUL GHANI (shams_ghani@hotmail.com)
Sep 07 - 13, 2009

The last 36-year history (1974-2009) of NFC reveals that consensus among the provinces on fiscal resource distribution has had been a rarity so much so that in 2006 a deadlock prompted the provincial chief ministers to vest the authority to the President to announce a just award. The then President, under the Article 160(6) of the Constitution of Pakistan announced the award through an Ordinance. The reason for the oft repeated deadlock situation can be traced to a number of variables - political expediency being the most dominant of them.

Population, area, level of backwardness, point of revenue generation, point of revenue collection, assignment of federal or provincial status to a particular tax, royalty issue are some of the variables that spur the respective federal and provincial authorities to lock their horns.

Meetings on the current NFC award are in progress. The history of such meetings suggests that an early resolution can hardly be expected. During the first meeting on 28 August, 2009, two committees were constituted to work out details and make recommendations for the allocation of fiscal resources among the provinces. Besides population, level of backwardness, and area, the major issues likely to generate high-pitch debate are GST, damage caused to war-stricken zones, hydel profits, gas royalty and crude oil surcharge.

The first committee comprising the provincial financial secretaries and federal finance secretary will take care of the vertical distribution issue. The second committee comprising all NFC members will try to resolve the horizontal distribution issues. The committees will submit their report in the next NFC meeting to be held in Quetta on September 18 & 19.

Shaukat Tarin's optimism about the amicable resolution of 'not so simple' issues has to be taken with a mix of caution and skepticism. The other day, he is reported to have said, "I am optimistic about the early finalization of the award. Representatives of the provinces showed very positive attitude during the two-day meeting. I am not taking any position. Multiple choices for distribution of resources would be discussed in the next NFC meeting."

The optimism of the federal finance minister notwithstanding, the NFC history raises genuine doubts in the minds of dispassionate analysts. As the history goes, during the pre-independence era, the Niemeyer Award (under the 1935 Act) treated sales tax as provincial subject. Even after independence (till March 1952), the same award was followed with some adjustments. After independence, Sir Jeremy Raisman evolved a revenue sharing formula which was put into practice with effect from April, 1952. According to this formula 50 per cent ad hoc share of sales tax was granted to federal government to help it overcome the post-independence early financial crisis.

Thereafter three awards (1961, 1964, and 1970) were announced. Since 1955, the four provinces were being treated as one unit and the revenue distribution was made between East and West Pakistan. Seventy per cent of the divisible pool was distributed between the said two wings of Pakistan in the ratio of 54 and 46 respectively. The remaining thirty per cent was distributed on collection basis. In 1964, NFC was set up under Article 144 of the 1962 Constitution. The distribution between the centre and the two provinces was in the ratio of 35 and 65. The provincial share of 65 per cent was distributed according to the then agreed ratio of 54 and 46. In July 1970, the four provinces of West Pakistan were restored to their prior-to-1955 position and their cumulative share of 46 per cent was distributed as follows:

Punjab: 56.5 per cent; Sindh: 23.5 per cent; NWFP: 15.5 per cent; Balouchistan: 4.5 per cent.

The resource allocation between the centre and the provinces was however changed to 20 per cent and 80 per cent respectively. Under the 1973 Constitution, the NFC was mandated to announce the awards not later than every five years. The table summarizes the revenue distribution from 1974 onwards.

VERTICAL AND HORIZONTAL REVENUE DISTRIBUTION PERCENTAGE

YEAR FED: PROVINCE PUNJAB SINDH NWFP BALOCHISTAN
1974 20 : 80 60.25 22.50 13.39 3.86
1979 20 : 80 57.97 23.34 13.39 5.30
1985 Interim Interim Interim Interim Interim
1990 20 : 80 57.87 23.29 13.54 5.30
1996 62.5: 37.5 57.88 23.28 13.54 5.30
2000 Interim Interim Interim Interim Interim
2006 45 : 55 56.07 25.67 13.14 5.13

While Mr. Tarin exhorted the provincial representatives to reach an early settlement on 'give and take' basis, it remains to be seen how much the center and the largest province are prepared to give. The figures of the table showing last 36 years' trend hardly support Mr. Tarin's optimism. One thing is clear that if area can't be the sole criterion for revenue distribution, population too can't be taken as the criterion. Sindh wants it on the basis of revenue generation and revenue collection, NWFP wants it on the basis of area backwardness, Balouchistan wants it on the basis of backwardness and area. Then NWFP and Balauchistan's demands on the basis of war damage and gas royalty also appear genuine. Are the centre and Punjab ready to accept 20 and 40 per cent respectively? Because only then the grievances of the smaller provinces can be taken care of.

But there is another pitfall. Need to develop and get rid of backwardness is one thing and the real urge and propensity to develop and get rid of backwardness is another. NWFP and Balouchistan, besides being the flashpoint of war and terrorism, have so far shown little propensity to develop. The blowing-up of schools in NWFP and infrastructure sabotages in Balouchistan raise serious questions about the utilization of enhanced revenue allocation. The issue boils down to the one point agenda - the abolition of feudal, sardari, wadera, and like systems before starting the development work from the grass root level. Or else, the enhanced allocation will simply go to the coffers of the privileged class of the backward provinces. The time has proven that the urban areas of Punjab and Sindh where the decades-old feudal system has almost lost its grip have shown more propensity to develop.