NFC Award

While addressing the members of the Lahore Chamber of Commerce and Industry, the Advisor to the Prime Minister on Finance, Dr Salman Shah, categorically stated that the sixth National Finance Commission (NFC) award would be settled before the budget for the fiscal year 2005-06 was announced. He added that 95% of the work in this regard had been completed and only 5% was left. This is, indeed, welcome news. However, there is widespread concern that the settlement he spoke of may consist of a unilateral decision taken by the centre at worst, or a wish-list as opposed to what has been agreed with the provinces at best, specially considering the recent political events in Balochistan and Sindh.
This view was lent credence from a comment made by President Musharraf on Thursday, while he was inaugurating his official website, pointing out lack of consensus in finalising the NFC award. As is well known, all the four provinces have been seeking greater funding as part of their NFC award to meet their development needs. Each has also come up with a different formula that would meet this primary objective.
Thus Sindh refers to a resource distribution on the basis of revenue collection, Balochistan and NWFP on the basis of deficient social sector indicators and Punjab on the basis of population. President Musharraf hastened to add that Punjab was no longer demanding allocation on the basis of population alone.
Considering that all NFC awards, after the separation of East Pakistan, allocated resources on the basis of population this stance taken by Punjab must be lauded because it sets the stage for a compromise, a requisite for any agreement on this thorny issue. The other provinces will have to follow suit before any lasting agreement is possible. One possible way to break the ongoing stalemate would be to ask each province to suggest a criterion that it would like to have in a multi criteria award for inter-provincial distribution and incorporate it in the award.
This would eliminate the feeling of deprivation, create an ownership of each province in the award and contribute significantly to provincial harmony that is sorely missing in the country. The provinces must then be brought on board and allowed to negotiate the weight placed on each of the criterion ie revenue collection, poverty, land distribution or population. In case of continued differences the centre must seek to appease the provinces through assistance outside the purview of the NFC.
This could be through direct development assistance, which maybe linked to the stage of development as indicated by social indicators prevailing in a province. The government may also consider allocating some of the revenue collected from within a province back into it based on the same principle as the royalty paid to Balochistan because of the location of gas reserves.
While the issues surrounding resource distribution are focused on horizontal distribution, ie between provinces, yet one must not ignore vertical distribution between the centre and the provinces. President Musharraf stated that there had almost been an agreement on a 52:48 distribution in favour of the centre but then the whole issue had been shelved to allow elected governments to deal with it.
However, from a historical perspective, resource distribution has always been an extremely thorny political issue accounting for the failure of all popularly elected national governments to reach a consensus even with supportive provincial governments. In short, to reach a meaningful and lasting accord there is a need to rigidly adhere to a consensus building process prior to taking decisions on resource distribution.
Dr Salman has referred to President Musharraf's suggestion for a 50:50 distribution of resources between the provinces and the centre as something that was still to be discussed. One would hope that a consensus emerges prior to any decision being taken thereby resolving this issue once and for all because that, without doubt, is in the national interest.