Seventh National Finance Commission Award
30 August, 2005
By Khalid khokar
President General Pervez Musharraf has reconstituted the National Finance Commission (NFC) as the tenure of the existing NFC has expired on July 21. This is the seventh NFC in country’s history. The new 10-member seventh NFC would be headed by Prime Minister Shaukat Aziz, who also holds the portfolio of the Finance Minister. The commission has been formed in pursuance of Article 160 (1) of the Constitution, says a notification issued on July 23. Ever since 1973 Constitution, six NFC Awards have been so far notified, last being reported on July 21, 2000. Finance ministers of Punjab, Sindh, the NWFP, Balochistan and adviser to the Prime Minister on finance Dr Salman Shah will be members of the commission. Besides, one member from each province will be notified in consultation with provincial governors while federal finance secretary will act as official expert of the commission. The terms of reference for the commission are: The distribution between the federation and provinces of net proceeds of the taxes, the making of grants-in-aid by the federal government to provincial governments, payment of royalties on crude oil and of surcharge on natural gas, and the distribution of share of taxes between the federal government and provincial governments.
Ever since the inception of Pakistan, the distribution of revenue amongst centre and four provinces has been an uphill task in a geographically and resource-wise uneven provinces of Pakistan. Different schemes of the distribution have been tried at different times since Raisman Award enforced in 1951. The stubborn and selfish stance on the part of provinces has played major role in not achieving the consensus on the seventh NFC due to be notified after July 21, 2005. However, in a quest to resolve the issue, the grievances of the affected have to be rationalized and addressed. The National Finance Commission (NFC) is a platform where Federal Government and four provinces agree on a formula to share out federally collected financial resources between the federation and federating units, Punjab, NWFP, Sindh and Balochistan. All Chief Ministers have reposed confidence in President General Pervez Musharraf for a judicious NFC Award. The Federal Government has promised fair distribution of resources in the new National Finance Commission (NFC) Award. The government is ensuring the provincial harmony by removing ‘genuine grievances’ of smaller provinces, as most of the development projects are being implemented in smaller provinces with maximum allocations.
Six awards have been distributed so far and all of them on the basis of population. The 6th NFC award went to effect in July 2000 for a time span of 5 years. It is still in progress due lack of consensus over the fresh one till to-date. According to this award, 57.88% of the total revenue went to Punjab, 5.3% to Balochistan, 3.5% to Sindh and 13.54% to NWFP. The newly constituted NFC is facing problems in equitable division of the revenue. The current formula is based on the population figures of the four provinces but those figures have distorted over the year, therefore, the Commission is in a deadlock. The Punjab government desires the existing formula to go on for another five years while the governments of the NWFP, Sindh and Balochistan want to review the basis of allocation. Sindh wants revenue generation to be the basis, Balochistan and NWFP desire area and level of development of the province to be the basis. Some of the differences projected by smaller provinces are: the share of small provinces should be amplified at the cost of Bigger province Punjab, 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. The NWFP government has been demanding 80 per cent weight for population, 19 per cent for backwardness and one per cent for Inverse Population Density (IPD), but no weightage to revenue generation. Balochistan province demands 100 per cent of the GDS because the resources are generated in Balochistan. Federal government is suggesting 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 NFC 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 with 50:50 percent in the first year and touches 52.5% for the provinces by 2009-10. Last year, NFC forwarded different options but commission failed to achieve consensus of all the provinces. NFC award has become a serious political issue as provinces are not ready to agree due to vested political interests. Now the only way out is through political strategy and management. The commission should engage itself more in political manipulation than formulation of different formulas. The prevailing economic situation of the country suggests that provinces should show some flexibility in their positions. In this context, federal government and four provinces should work on the principle of "give and take". President General Pervez Musharraf’s re-constitution of the seventh NFC is a step toward right direction which will increase national integration and cohesion amongst centre and all the four provinces.