Inter-provincial harmony, undoubtedly, plays an important role not only in the development of a nation but also in promoting and maintaining democracy. The centre plays a conciliatory role by ensuring that the provinces seek a solution to the issues through amicable negotiations, and by avoiding unnecessary interference in matters where the interests of the provinces lie so that all the federating units can co-exist in harmony.
Fiscal decentralisation is one of the basic principles of democratic federalism. The constituents units, provinces, in democratic federation possess the right to collectively decide the extent to which the resources are provided to the centre to run its business. But in Pakistan’s case things go in the opposite direction. Almost seven decades down the road, and even after the passage of the 18th constitutional amendment, the provinces are still at the mercy of the federation when it comes to distribution of resources.
Since the inception of Pakistan the National Finance Commission (NFC) award has been controversial, and has caused a great deal of resentment between centre and the provinces and within the provinces. Population was not the basis of the award when East Pakistan was part of the federation; rather, it was revenue and inverse population density that formed the basis. But after the separation of East Pakistan, population was made the sole basis for the distribution of the NFC award instead of the previous criteria.
There is hardly any federal state in the world where financial distribution among federating units is made solely on population. After the separation of East Pakistan, six NFC awards from 1974 to 2006 were given on the basis of population.
According to the current, the seventh, NFC award, 44 percent is directly taken by the centre, which is dubbed as vertical distribution. Out of the remaining 56 percent, Punjab gets 51.74 percent, Sindh 24 .55 percent, Khyber Pukhtunkhwa 14.62 percent, and Baluchistan 9.09 percent. The allocation is termed as divisible pool. Keeping in view the level of backwardness and poverty in provinces other than Punjab, this distribution does not seem to be justified. Under this arrangement, Punjab takes the major share from both sides, whereas Sindh contributes about 70 percent to the total financial income of the country. If the assessment is made on the basis of revenue, the share of Punjab comes to 23.04 percent, and Sindh should get 69.02 percent. This is what makes the NFC award a contentious issue between the centre and the provinces as well as among the provinces.
The Pakistan People’s Party government announced the seventh NFC award in 2009 according to which share of the centre and the provinces was fixed as indicated above, which according to the principle that was practised before the 1996 award should have been 20 and 80 percent respectively. The distribution of the present award is based on multiple criteria but, unfortunately, 82 percent of the distribution is still based on population, whereas a share for poverty and backwardness, production and collection of revenue and inverse population density is 10.3 percent, five percent and 2.7 percent respectively. This reflects that distribution of resources among the provinces is far from what can be termed as just and satisfactory. According to the 18th amendment, the share of the provinces could be increased but cannot be decreased from the share fixed in the seventh award.
After the 18th amendment, the NFC award has become more crucial because the provinces need to fund important services like education and health adequately. However, the present government has cut a sorry figure in doing the needful. Instead of updating the award, they have resorted to ad hoc extensions. Now the smaller provinces have protested the delay in a recently held finance commission meeting. It is startling to note that the NFC award was not discussed once during the 18 meetings of the Council of Common Interests held in the last 10 years.
The smaller provinces feel that the delay in announcement of the new award suits the federal government because it gives them space to arbitrarily hand out the withheld money. It also gives the impression to smaller provinces that the government serves only the interests of Punjab. This will further create feelings of alienation among the provinces. The government must not act in a haphazard manner, and the new award should be announced by giving smaller provinces their due share. Keeping in consideration the circumstances the country is faced with this development would also create harmony and good will among the provinces.