Comment: Politicizing NFC Award
By Muzhar Javed Malik
The distribution of revenue, at parallel and perpendicular level, has been a tangled and twisted issue in a politically instable, socially uneven, ethnically assorted and constitutionally puzzled, lacking inter and intra provincial harmony like Pakistan, since the very first day of its inception. Different schemes of the distribution have been practiced at different times since preliminary Raisman Award announced in 1947 and enforced in 1951 but of no use due to political discrepancies and preference of vested interest over national, by the forces dynamic in the corridors of power. This irresponsible and politically immature approach and stance on the part of stakeholders is placing national integration and solidarity at stake that calls for immediate and instant resolution and way out of the crisis reached through dialogue by addressing the grievances and grumbles of the affected.
The National Finance Commission (NFC) is constitutionally mandated forum, supposed to come across a modus operandi good enough to the central government as well as the four provinces, to share out federally collected financial resources between the federation and federating units, Punjab, NWFP, Sindh and Baluchistan. Federal Finance minister heads the NFC and the provinces correspond to by their respective ministers of finance.
Now the 8th National Finance Commission was constituted by General Pervaiz Musharaf under article 160 of the constitution to perform this uphill task. The current recipe is based on the population figures of the four provinces but those figures have distorted, during the last twenty four years, beyond recognition. So, the Commission is in a fix. The Punjab government desires the existing formula to go on with for another five years while the governments of the NWFP, Sindh and Baluchistan want to review the basis of allocation. Sindh wants revenue generation to be basis, Baluchistan and NWFP desire area and level of development of the province to be basis.
The dilemma of dividing the revenue is not new. This problem started with the creation of Pakistan and the first financial award was given in Dec. 1947 by Sir Jeremy Raisman that was adopted, after many years, in 1951. The central government is apprehensive 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 divisible pool of earnings.
Five awards have been distributed so far and all of them on the basis of population. The 5th NFC award that was announced in 1996 and went to effect in July 1997 for a time span of 5 years is still in progress and going on even after expiration of specific period because of no consensus over the fresh one so far. According to this award, 57.88% of the total revenue went to Punjab, 5.3% to Baluchistan, 3.5% to Sindh and 13.54% to NWFP. Federal government transferred Rs. 96.15 billion to Punjab, Rs67.3billion to Sindh, Rs.22.3 billion to NWFP and Rs. 17 billion to Baluchistan, a total of Rs.193 billion.
The NFC, among others, is facing following major issues. Mainly the horizontal issue of agreed formula of sharing of resources among provinces and of course the vertical issue of sharing divisible pool, which the center has offered. The other is the conformity on approximately 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. An agreement on the payment of royalty to the NWFP on hydel power and, a similar accord on the payment of royalty on gas to Baluchistan.
Federal government is to suggest a structured and step by step approach to provinces to increase their share in the federal divisible pool to 50% in a phased manner under the sixth national; finance commission award. This means that provincial share of FDP would start from 48% or 48.5 % in the first year of new NFC. This would be increased every year reaching 50% in 2009-10.but the provinces say the formula simply offered an escalation cost and if the step by step approach to be adopted, it should be structured in a way that it starts with50: 50 percent in the first year and touches 52.5% for the provinces by 2009-10.
Last year several meeting of the national finance commission were held chaired by the economist turned politician Prime Minister Mr. Shaukat Aziz who obviously lacks political maneuvering and manipulation. Different options more popularly known as “seven options” were forwarded by the commission but in vain because commission failed to achieve consensus of all the provinces. These seven options are provided below.
NFC award has become more political issue than economic because a wide range of the options has been made available by the commission to provinces but provinces are not ready to agree on some point due to vested political interests. So it should be solved though political strategy and management like the award of 1991 that was finalized through the political wisdom of ex-prime minister Mir Zafar ullah Jamali. So the commission should engage itself more in political manipulation than formulation of different formulas. However following points can be instructive in this concern.
The share of small provinces should be amplified at the cost of Big Brother Punjab that has been enjoying the sympathies of the federation since long time as a natural ally. The share of the federating units should be augmented at the price of federation that has comparatively more channels to generate revenues. Sharing of revenue should be under multiple criteria of different factors like population, poverty and backwardness of the province, area of the unit, revenue generation not collection and overall contribution of the province towards the national development.
Under the existing award, the provincial share of divisible pool would range between 270-280 billion rupees from Rs239 billion during the current year if the share of federating units is increased up to at least 48%. The sources said that the total size of the divisible pool during 2005-06 would be around Rs620 billion of which around Rs 35-40 billion would be deducted by the federal government as service and collection charges, leaving Rs 580-585 billion for the distribution among center and provinces.
From 1947 to 1970, Baluchistan share in national resources was only 0.6% of the West Pakistan’s share of taxes. Baluchistan emerged as a province in 1970 when one unit was undone. The first elected government with majority in a 20 member house took over in 1973 and was dismissed in the matter of few months. In the first award of 1974, Punjab got 60.25 NWFP 13.39, Sindh 22.50 and Baluchistan 3.86.so the grievances of the most affected unit should be addressed first. Just few weeks are down the road in the homework of new budget and there is no new development on the issue of NFC award .we should take this matter serious otherwise inter and intra provincial harmony and cohesion will be at stake because of negligent attitude and no commitment on the part of political leadership.