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How Amendment in NFC Award Has Become Essential

Sidra Insar Chaudhary

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Sidra Insar Chaudhary     

 After the promulgation of the Government of India Act, 1935, which introduced provincial autonomy in colonial India, the British government announced the first award called Niemeyer Award in 1936. The Raisman Programme formerly known as the Raisman Award was the succession of the ongoing programme of economic reforms in Pakistan announced by Prime Minister Liaquat Ali Khan. The then Secretary Finance, Sir Jeremy Raisman, was appointed to prepare the mechanism for the distribution of tax revenues. Later, the award was renamed as the National Finance Commission.

 Therefore, National Finance Commission Award or NFC is basically a series of planned economic programs in Pakistan enacted since 1951. President Dr Arif Alvi has reconstituted the 9th National Finance Commission (NFC) to work out a new resource distribution formula between the Centre and the federating units. The new 10-member commission has Finance Minister as its chair comprising federal finance secretary as the official member, four provincial finance ministers (statutory members), and their respective technical members (non-statutory members).

 Pakistan has historically been a highly centralised federation, and the federal government has massive powers to collect tax revenue, which are then distributed among the provinces. It determines the tax base: who should be taxed, the percentage of tax and the tax collection mechanism. According to Article 160 of the Constitution, after every five years the president will make up the NFC for five years. Once there is a consensus of all stakeholders on a particular formula to distribute the finances, the award will be implemented for the next five years. Since Pakistan is a federation and has four federating units, i.e. Sindh, Punjab, Khyber-Pakhtunkhwa (K-P) and Balochistan, and other territories including Gilgit-Baltistan and Azad Jammu and Kashmir which come under the federal government directly. It means the NFC award to distribute financial resources between the federal government (vertical distribution), and the provinces (horizontal distribution).

 The distribution of finances among the provinces was, until 2010, solely based on population. This meant a major share of the resources went to Punjab. Public investment complements private investment. Since there was minimal public investment in Balochistan and K-P ever since the colonial era, both the provinces remained deprived of private investment. Hence, historically, they have been at a disadvantage.

 Second, other than the divisible pool, it transfers funds to the provinces as right of royalty over their resources, and grants that are developmental and non-developmental. Historically, the smaller provinces did not receive their due share in royalty, i.e. exploitation of gas from Balochistan.

The NFC in 2010 addressed at least a long over-due concern and made a shift from population-based criteria. It introduced a multiple indicators formula for the distribution of financial resources among the provinces. The indicators now are population (82%), poverty and backwardness (10.3%), revenue collection and generation (5%) and inverse population density (2.7%). It announced this 7th award with consensus of the provinces in May 2010. Punjab sacrificed its share of 5.62% which was redistributed among other units. Still, the 82% weight age of population outweighs other indicators. This may further be cut down to devise a more inclusive formula.

 Also, the NFC award, under Nawaz Sharif’s first government in 1990, agreed to compensate Balochistan and K-P for their right of royalty and paid the same as arrears under non-development grants which are discretionary grants and can be spent on as you please. The 8th award in 2015 under the last government, however, remained inconclusive.

 It is a constitutional requirement under Article 160 to make up the NFC after every five years.

The 9th NFC award was expected to be challenging because provinces now had more subjects and more responsibilities after passaging the 18th amendment and are demanding greater resources. It had merged the erstwhile FATA into K-P, whose relative share would automatically increase for at least based on population, area, and poverty.

 Also, the federal government was and is still facing financial constraints, so making a win-win deal which is convincing and acceptable for both the federal government and the provinces was the biggest challenge.

 But the situation didn’t turn out to be as I expected it cause it turns out that it is more complicated and more challenging as the Federal Government of Pakistan is performing many functions which are otherwise the responsibility of the Provincial Governments. This includes matters relating to Public health, drugs, dams, education, public projects in Provinces, labor, environment, locusts and many other Trans Provincial activities which are obligations of the Provinces but have to be performed by Federal Government. All these activities cost a tremendous sum.

 Likewise, the Constitution though requires financing and functioning of Local Government, yet they have no funds available directly. The NFC Award should reflect these important aspects. The Provincial share in the NFC Award should be equitably divided into three portions i.e. Provincial Government share, Local Government share and Federal Government share for the works by Federal Govt. on the behalf of Provinces. The NFC award should reflect this distribution and should be amended accordingly.

 

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