NFC: Musharraf's options

The March 31 deadline having come and gone without yielding any breakthrough in the deadlock on the new National Finance Commission (NFC) Award, President General Pervez Musharraf has felt constrained to intervene and use his authority to bring about a settlement of the issue.
For this purpose, the President has called a meeting of the stakeholders in Islamabad this morning (Tuesday).
The invitees' list has been reported as including the provincial governors and chief ministers, apart from the provincial and federal finance ministers.
The issues of contention that have emerged during the series of fruitless meetings of the NFC still hover around two basic unresolved problems.
The first is the distribution of resources from the divisible pool between the Centre and the provinces.
The latter have been agitating for a 50 percent share, whereas the former has committed only 46 percent so far (with the latest hints dangling 47 percent before the provinces).
The provinces' complaint is that apart from this lower share, the 2.5 percent of GST they were supposed to receive in lieu of the abolished octroi taxes, has been included in the divisible pool by the federal government, whereas it was supposed to be outside it.
Mercifully, NWFP's demand that the net hydel profit issue be resolved before it would sign any Award has been met by setting up an arbitration mechanism for resolving the matter.
The other contentious issue is the distribution of the provinces' share amongst themselves. Punjab continues to insist on population as the sole basis for this distribution, with the latest sop thrown in being that Punjab would be willing to contemplate raising the subventions for backwardness from the present Rs 20 billion to say Rs 40 billion, but not as a percentage of available provincial resources.
Sindh has argued that population be factored in with a weightage of 70 percent, with the remaining 30 percent being weighted in favour of revenue generation and backwardness.
Sindh wants a weightage of 15-25 percent for revenue generation and the rest for backwardness.
On this, it has only been able to persuade NWFP and Balochistan to agree to an 80:20 weightage, with no news on what the respective weightage of revenue generation and backwardness might be acceptable to the two smaller provinces.
Ideally, all the provinces hold they should receive 50 percent of the divisible pool from the Centre, and if this is not to be, then Sales Tax, which has been taken over by the Centre, should be returned to the provinces.
This latter demand is unlikely to receive a sympathetic hearing in Islamabad, since the Sales Tax now constitutes one of the Centre's major revenue sources. Punjab has to somehow be persuaded that the question of distribution based on weighted factors other than population is not a zero-sum game. If, for example, revenue generation is weighted in as a factor, Punjab would benefit too, since it is now enjoying a higher level of industrialisation.
Similarly, if subventions for backwardness are reverted to, there are arguably areas in Punjab too that would qualify on the criterion of backwardness.
One province's gain, therefore, is not necessarily another's loss. It goes without saying that the provinces' case has been weakened by their exaggerated forecasts of revenue and expenditure over the next five years and their inability to agree on the distribution formula amongst themselves.
Secondly, provincial authorities need to pull up their socks and must strive to enhance their own revenue collection.
It appears that the Centre has reservations, due to politico-geographical compulsions, on higher allocation for the provinces.
Since, the revenue base has expanded by 2.5 times since the last award, the actual funds flowing to the provinces will be much more.
Therefore, there has to be a spirit of give and take between the four federating units to arrive at an amicable solution.
The President will have to pull out all the stops to persuade the participants holding divergent views or, if that fails, override them and impose a decision.
This may not be the happiest manner of resolving the issue, but failure to agree cannot be allowed to linger on indefinitely.
April 15 constitutes a cut-off date for resolving the issue, otherwise the budget making exercises in the provinces and at the Centre will have to proceed under the old Award.
Similarly, Pakistan would like settle the issue by April 22 latest in order to attend the IMF/World Bank meetings starting in Washington from April 24, armed with agreement on a new Award.
In the absence of the stakeholders being able to forge a consensus, there seems no other way out except for the President to pull rank and decide the issue in his wisdom.