Despite last minute intervention of Prime Minister
Jamali, the National Finance Commission failed to reach a consensus
among the provinces compelling the authorities to request the President
for extending the application of 5th Award for another (2004-05) year.
The President was well advised not to intervene directly or indirectly
in view of the sharply divided views of the provinces.
The strict stance of Sindh and Punjab Chief Ministers
on revenue collection and population could not bring any results.
Finance Minister had asked NWFP and Balochistan to stay and fix the
amount of subsidies and grants for their next budgets. There is almost
no time left to continue discussions to resolve and take it further.
The threads of discussions on the 6th Award will now
be picked up gain after the announcement of the federal and provincial
budgets. Finance Minister Shaukat Aziz has played his cards in the most
shrewd manner. As a results, the provinces are now themselves made to
look responsible for the bickering over the formula of distribution of
proceeds, even though the federal government has not met their demand
for a 50:50 ratio on the distribution of proceeds between the center and
Now the budget is going to be based on the existing
formula with some increase in grants and subventions to the provinces by
the federal government since the finance ministers of NWFP and
Balochistan have been asked to stay in the capital to discuss shortfalls
in their budgets which would be met through higher grants which are
currently capped Rs. 3 billion and and Rs. 4.8 billion, respectively.
The beneficiary, of course, is the federal government. And the credit
for this would definitely go to no other than Mr. Aziz who has cashed in
on the invetiable lack of harmony among the provinces over the issue of
The provinces other than Sindh have agreed that a 90
percent weightage be given to population and the remaining 10 percent to
multiple factors minus revenue collection. But Sindh was adamant that
revenue collection should be given some weightage. Sindh Finance
Minister Sardar Ahmed has been quoted as saying that after a lot of
discussions, other provinces refused to include revenue generation in
the multi-factor formula.
Although the non-finalization of the NFC Award would
affect the financial interests of all the four provinces, the whole
exercise has perhaps demonstrated one fact very clearly, the majesty of
democracy. Now the representatives of each province feel that they
cannot budge from the stance that they had taken keeping in view the
interests of their people. It was not going to be similar what happened
in the cases of previous awards, particularly the fifth award.
Without going into the merits and demerits of Sindh's
demand that revenue generation be included in the multiple factor
criteria, it is amply clear that the province is in no mood to give up
its demand. And this despite realization that such an inflexible stance
will result in the finalization of budgets without the finalization of
the award, which in turn, would make the people of Sindh, rather than
the other provinces, suffer.
According to sources in the Ministry of Finance,
provinces will get Rs. 202 billion in 2004-05 from the federal divisible
pool under the existing NFC award against Rs. 174 billion they had
received during the current fiscal. We will be offering an additional Rs.
28 billion to the provinces in the next budget under the old resource
distribution formula," said a senior official in the finance
ministry. The official said there were other funds called 'straight
transfers' that went to the provinces, including the excise duty on
natural gas and crude oil as well as surcharge on gas. He expected that
the federal government, that had provided Rs. 21.6 billion under this
head to the provinces in 2003-04, would increase the amount in the next
budget. He pointed out that Rs. 8.7 billion subventions were given to
two provinces Rs. 3.9 billion to the NWFP and Rs. 4.8 billion to
Balochistan. Balochistan, the official said, could not return its Rs. 5
billion overdraft to the State Bank as it did not get gas royalty from
the petroleum ministry. The petroleum ministry had been directed to
clear its dues payable to Balochistan by June 30, he added.
Asked as to why there had been no consensus on the
6th NFC award, he said Sindh was maintaining that it should be
adequately compensated for collecting huge taxes. But this argument, he
added, was not acceptable to other provinces who said they were paying
port charges to Sindh and were therefore unwilling to accept that Sindh
was making sole efforts in revenue collection.
Discussion on the 6th award will be resumed after 2/3
months from where the last meeting of the NFC broke up without
resolution, the situation had boiled down to the Centre raising its
offer to the provinces to 47.4 percent of the divisible pool. Later,
press reports said the centre was willing to go up to 48 percent, with
annual raises in this share until it reached 50 percent by the end of
the Sixth Award in five years time. This 50 percent, it may be recalled,
was the unanimous demand of all the provinces. While it is right that
the provinces, fiscal needs should be accommodated so that the whole
thrust of devolution of power (including financial powers) can be
implemented in letter and spirit, the provinces too need to acknowledge
the constraints of the federal government in terms of the security and
defence environment in which the country is currently placed. There is
merit, however, in the argument of the provinces that duplication of
ministries at the federal level that rightfully belong in the provincial
sphere is a waste of resources that could otherwise be available for the
provinces. The centre's rather high collection charges of 5 percent too
need to be reviewed and brought down to something more reasonable. As
such changes and reforms are implemented, whatever additional resources
are released should be given to the provinces so that their complaints
are allayed to some extent.