The issue of NFC awards must be settled in a democratic manner and in a spirit of give and take


Dec 27, 2004 - Jan 02, 2005









Efforts afoot to evolve a consensus ahead of the meeting of the National Finance Commission (NFC) in January is being viewed with skepticism. Apprehensions are being expressed from relevant circles that an "Authoritarian Consensus" is being pushed through by the federal government. These apprehensions have now been confirmed by resignation of a representative of Sindh province on the NFC.

Announcing his resignation at a press conference, Abdul Karim Lodhi, NFC member from Sindh alleged that the NFC was not being allowed to function accordance with the constitutional provisions for many years. His argument was based on the fact that the constitution enjoins upon the NFC to determine the respective shares of the federal government and provinces from the divisible pool. But, far from that the NFC is not even given the opportunity to examine the total receipts of taxes. The Finance Ministry simply imposes its decision that the share of the provinces would be so much. This practice has reduced the NFC to a mere tool in the hands of the Finance Ministry. He went on to argue that subjects such as grants in aid to the provinces and the exercise of the constitutional borrowing powers of the federal and provincial governments are not brought to the NFC although they are on its agenda. Neither the public nor the official quarters are even aware of these functions of the NFC.

He also pointed out that nowhere in any federation in the world is population, the sole criterion for sharing taxes between the center and the federating units. Repeated pleas by the provinces for adoption of other determinants such as underdevelopment, sparseness of population coupled with vast area, and contribution to the collection of taxes, have not been paid heed to. Even Sindh's demand for a small recompense of not more than 5 percent from the 69.02 percent of the divisible taxes collected in the province has not been accepted. Besides, distribution of 2.5 percent of GST on the basis of population to compensate, the provinces for the loss of revenue after octori was abolished is another injustice to Sindh.

Despite last minute intervention of Prime Minister Jamali in June last, 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 strict stance of Sindh and Punjab Chief Ministers on revenue collection and population could not bring any results.

The threads of discussion on the 6th Award will now be picked up gain. 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 the provinces but it has agreed to raise provinces share to 47 percent from present 37 percent.



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.

The issue of NFC awards must be settled in a democratic manner and in a spirit of give and take. The provinces must show flexibility in their positions and the center should lead the way by accommodating provincial demands. For example, the federal government's proposal to increase the share of the provinces in the divisible pool falls short of provincial demands to raise their share to 50 percent from the existing 37.5 percent. The manner in which the finance ministers of all four provinces were able to put across their demands in past meetings should be seen as a positive preparation of the ground work for an agreement that is acceptable to all.

What is required is to work towards a general agreement. History has shown us that those issues that are resolved as a result of building a consensus are more long lasting. But building a consensus will be a difficult task. Punjab's demand for population as the sole criterion for allocation of resources is as unacceptable to other provinces as is Sindh's demand for revenue collection as the principal determinant for revenue sharing. An acceptable basis has thus to be worked out by agreeing on population as the primary determinant and then adding revenue collection, under-development, rural poverty, internal migration and so forth as factors warranting weightage in the matter of resource allocation among the provinces. These are some of the considerations that must be taken into account in arriving at a fair and realistic basis for resource sharing. The question is one of mutual understanding and accommodation in the larger national interest. Unless such as spirit is brought to bear on the task ahead, a consensus on the next NFC award would be endlessly delayed, allowing positions to be further hardened and hardship caused to the resource poor provinces.