NFC AWARD: NO CONSENSUS

Being unrealistic and not heeding legitimate demands never pays

From SHAMIM. A. RIZVI, Islamabad
Jun 29 - Jul 05, 1996

The federal budget for 1996-97 has confirmed the view that no consensus has yet been evolved among the four provinces about the award of National Finance Commission despite numerous meetings and all statements of government functionaries so far hinting towards an agreement were false. Allocations of divisible pool were made as per the old award in the budget for 96-97.

After the last round of talks in Quetta early last month the Balochistan finance minister, Jafar Khan Mandokhel announced at a press conference that the sub-committee of the NFC has finally evolved consensus on its recommendations providing the basis for distribution of national resources between the centre and the four provinces. Mr. Mandokhel who was accompanied by Balochistan education minister, Dr Abdul Malik — the two persons represented their province in NFC Meetings — told the newsmen that the unanimously adopted recommendations will be submitted to the prime minister for final approval. They however, declined to elaborate on the proposed suggestions.

From what the prime minister said at her post-budget briefing of the senior economic correspondents, it appears that the recommendations did not meet the approval of the prime minister. She said that the existing National Finance Commission (NFC) award discriminated against the smaller province of Balochistan and NWFP, and this flaw should be rectified in the next award.

The prime minister made this observation during the course of a detailed reply to a question about the non-imposition of tax on farm incomes by Punjab at a special briefing on the 1996-97 budget at the Prime Minister House.

According to her, the "excessive" allocation to Punjab in the NFC award left "no economic dynamics" for it to levy this tax. However, she disclosed that during the recent National Economic Council (NFC) meeting, the Punjab chief minister had promised to opt for tax on agricultural incomes. All the four provinces, she added, had assured the NFC that they would impose this tax.

The prime minister said that the NFC award gave 80 percent of the divisible pool to the provinces, leaving the remaining 20 percent for the federal government. This award needed to be reviewed. It was based on population and Punjab and Sindh being the more populous provinces got most of the pool. On the other hand, Balochistan and North West Frontier Province (NWFP) had been facing financial difficulties because of their backwardness. The federal government too had to cater to the needs of Federally Administrative Tribal Area (FATA), Northern Areas and Azad Kashmir. There is a dire need to review the NFC award.

It appears that all efforts to reach a consensus on NFC award proved abortive because of serious disagreement among the provinces on the issue of resource distribution and thus the fate of the award still hangs in the balance.

The NFC is facing three major issues. One, an agreement of on the Rs 90 billion divisible pool of taxes, of which the federal government gets 20 percent, and another 5 percent as service charge for the collection of the revenue for the provinces on the basis of the formula worked out by the Nawaz Sharif administration in 1990. Two, an agreement on the payment of royalty to the NWFP on hydel power and, three, a similar accord on the payment of royalty on gas to Balochistan.

The provinces were allowed, in the 1990 award the following share in the divisible pool on the basis of population according to the 1981 census: Punjab 57.88 per cent, Sindh 23.28 per cent, NWFP 13.54 per cent, Balochistan 5.30 per cent.

The NFC award that the Nawaz Sharif government hammered out in 1990 was projected at that time to be a consensus document but later when the Nawaz Sharif government was ousted in 1993, Punjab and Sindh raised several objections to the formula. From the Punjab's point of view, the Rs 9.5 billion allotted to the NWFP was far in excess of what the province actually should have received according to its population. Punjab believes that its share of Rs 11 billion is not commensurate with the ratio of its population and contribution in the divisible pool of taxes. These issues are not easy to resolve and, according to some reports the meeting of provincial governments has already reached deadlock warranting an intervention from the prime minister.

The National Finance Commission (NFC) is supposed to find a formula acceptable to the central government as well as the four provinces to divide and allocate the country's revenue earnings. The current formula is based on the population figures of the four provinces but those figures have changed, during the last fifteen years, beyond recognition, and there are no prospects of a fresh population census in the near future. So, the Commission is in a fix. The Punjab government wants the current formula to continue for another five years while the governments of the NWFP, Sindh and Balochistan want to review the basis of allocation. A point has been reached where the Punjab expects the prime minister to intercede on its behalf and persuade the other provinces not to raise dust unnecessarily. As always, the central government, which controls all the revenues of the country, and the Punjab are pitched against the other provinces. The Punjab has been a traditional ally of the central government in this matter because it benefits the most from the location and income-generating effects of central expenditure. For example, the Punjab, with the largest share in the defence forces, gains far more than the smaller provinces from defence, the principal consumer of the national budget.

The problem of dividing the revenue is not new. It started with the creation of Pakistan and the first financial award was given in Dec. 1947 by Sir Jeremy Raisman which was adopted, after many years, in 1951. Since then there have been seven financial awards but even the composition of the divisible pool has not yet been determined to the satisfaction of all the provinces. The central government is anxious to keep the pool restricted to the minimum possible items of earnings and has no intention of allowing foreign aid, project assistance, loans or privatization proceeds to come into the divisble pool of earnings. The centre has thus become the sole custodian of all the official earnings and the provinces have been reduced to the position of supplicants for grants to carry on their development programmes.

The population of the four provinces, particularly Sindh, has undergone enormous changes in the last fifteen years, and the old basis of allocation is no longer logical. A fresh census would alter the composition of the membership of the National and provincial assemblies to the detriment of the feudal classes and reduce the share of the Punjab in the divisible pool. It is time to realize that if we do not decentralise power, and give the provinces the autonomy and the resources to look after their own development, we will undermine the very basis of our national cohesion and sense of interdependence.

In order to have an agreed award we must, first, have a fresh census as 1981 figures have lost all relevance. It is now argued by Sindh that Punjab has lost 12 to 14 percent of its population primarily because of migration of its people to the industrial city of Karachi. NWFP is also claiming increase in its population because of a large number of Afghanis who have almost permanently settled there. Hence the sooner the biggest province tries to adjust itself to these realities and soften its attitude to accommodate the legitimate demands of the smaller provinces, the better it would be for national cohesion.