NFC award: PPP-led government gears up to remove apprehensions of federating units

Lack of consensus on political and economic fronts has not hampered the resolve of the federating units to find out a workable formula for National Finance Commission (NFC) award as population-based distribution of resources from the Federal Divisible Pool down to provinces is not acceptable to the smaller provinces.
The distribution of resources through NFC had always been a source of tension among the federating units in the past, but the present coalition government, realising its importance, is geared up to implement award, removing all the apprehensions of federating units for bringing harmony, sources told Business Recorder on Tuesday.
They said the NFC award had always remained a source of tension among the provinces and between the federating units and Federation in past. But the present coalition government had realised that the provincial harmony could improve by implementing the award in true letter and in spirit and, threrefore, it had sought nominations from the provinces for the NFC award.
On the other hand, in a recent meeting in Karachi, the federating units have developed a broader consensus to bring down the share of the Federal government from present 62.5 per cent to 50 per cent.
Earlier, high government functionaries visited all the provinces to meet the Speakers and Chief Ministers of the respective provinces to resolve outstanding issues pending in Senate, especially related to NFC award. They met the Speakers and Chief Ministers of NWFP and Punjab and held discussions with them on the issue. Moreover, the Ministry of Finance has submitted a summary to the President for the composition of NFC award.
Sources said that the unelected government of President Pervez Musharraf and later on PML (Q) government developed consensus to reduce the Federal share to 50 percent, but it could not finalise the formula for distribution of resources among provinces.
"But the Centre is not willing to reduce its share from 62.5 percent to 50 percent because of accumulation of public debt and expenditure on defence," sources said.
Experts argue that minor changes in the present formula of resource distribution will definitely reduce the share of Punjab, which will not be acceptable to the province.
But the government will have to mend the population-based criterion for resource distribution among provinces under the National Finance Commission (NFC) award for creating harmony. Independent economists believe the government must broaden resource distribution base by encompassing disparities like human development index, inverse population density and revenue generation by a particular province in factors that determine how much money will go to a federating unit, enhancing the size of Federal Divisible Pool by injecting more money into it out of the Federal government's share in total revenue collection.
The Federal government must cut its non-development expenditures to ensure the availability of maximum funds for provinces. Sources said that the award had long been and was still based on population, predominantly, but all provinces, except for Punjab, wanted a different criterion.
Sindh had been calling the revenue generation to be the base for the award, NWFP used to cry for backwardness and Balochistan kept up demanding NFC with inverse population density, said the sources. The analysts believe that inter-province wrangling over the NFC formula have caused a four-year delay in the announcement of sixth NFC award. The decision that has to be taken in 2002 lingered on till 2006 when President Musharraf announced an interim arrangement.
Under the makeshift award, the provincial shares in the divisible pool were raised to 41.5 per cent in the 2006-07 fiscal and a gradual increase to 46.25 per cent in 2010-11 was envisaged. The provinces' demands were partially fulfilled by increasing subversions or grants-in-aid for them. A permanent award is, however, still awaited.
There have been seven NFC awards since 1951 and the eighth is under way. The 1974 NFC award was achieved by sharing fewer taxes, which, during the 1991 award were expanded with the inclusion of new taxes, especially excise duties on some commodities in the divisible pool. In 1997, it was further expanded by including the royalty and development surcharges.