Home »Editorials » The logic of the NFC Award

The statements of Federal Finance Minister Shaukat Aziz in recent days, and particularly during his press conference after a meeting in Karachi the other day with the finance ministers of all four provinces, have tended to reinforce the emerging view that the next National Finance Commission (NFC) Award will accept the logic of changing the share of the provinces from the divisible pool in a positive direction.

The 1997 Award left the provinces with a paltry 37.5 percent of the divisible pool, creating great difficulties for them to meet their running expenditure, let alone undertake development.

Voices have been heard inside the corridors of government consultation as well as outside that the next Award should distribute resources from the divisible pool in the ratio of 50:50 between the provinces and the Centre.

Shaukat, however, while assuring the federating units that they would be provided with more resources, has so far steadily refused to commit himself to any figure, let alone the 50:50 proposal.

One reason for this circumspection on his part may be the ongoing discussions on the respective share of each province from the overall provincial cake.

A lot of airing of views has already taken place on the basis for the inter-provincial distribution.

The existing criterion, which outweighs all else, is population. This has tended to produce a skewed distribution in favour of the most populated province, Punjab, which also is the most developed.

The other three provinces have been crying themselves hoarse that other factors, such as revenue generation (Sindh), backwardness (NWFP and Balochistan) and distance from revenue generating centres (ie size, poor communications, etc) should also be weighed when deciding distribution of resources so as to correct the uneven development legacy of the past and allay the complaints of the less developed provinces that they continue to be hard done by in the federation.

The broadening of the criteria for inter-provincial distribution is not a zero-sum game, as some think in Punjab and elsewhere.

What may seem at first glance to favour just one province, on closer examination could turn out to be beneficial for other provinces too.

Take revenue generation for example, whose most ardent advocate has been Sindh. It is an undeniable fact that given the port and Karachi's status as the industrial and commercial hub of the country, revenue generation from Sindh contributes a weighty amount to the national exchequer.

If, in addition to population as a basis for distribution that favours Punjab and then Sindh, revenue generation is factored into the distribution formula, Sindh would certainly be advantaged, but Punjab, as the second highest revenue-generating province, would be benefited too.

Similarly, Balochistan's being the largest province in size would weigh in its favour but Punjab as the second largest province would benefit too, and so on.

The broadening of the basis for distribution would help to do away with subventions of about Rs 20 billion to the two most backward provinces, NWFP and Balochistan, but they would be compensated by a greater share from the divisible pool.

An aspect of ensuring that decentralisation and devolution enfolds finances too is the intra-provincial distribution of resources, ie between the districts in each province.

If similar criteria to the NFC Award were to be used for the provincial finance commission awards, this would ensure balanced development of the districts in each province.

Helping less developed provinces, and less developed districts within the provinces, catch up with more developed areas cannot be achieved overnight.

But this legacy of past uneven development can be steadily brought to a more even keel over time provided the distribution formula helps in the achievement of this goal.

Uneven development, whether amongst the provinces or amongst districts within the same province generates resentment and complaints of discrimination.

Instead, the federation and national solidarity would be enhanced and strengthened if the principle was adopted that the condition for the development of one unit is the development of all units.

Copyright Business Recorder, 2004


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