A historic agreement
The seventh consensus National Finance Commission (NFC) Award agreed between the Centre and the provinces and amongst the provinces is a historic step forward in the direction of strengthening the federation by increasing the provinces’ fiscal space. The long standing demand of the smaller provinces for more provincial autonomy has taken a giant leap forward as a result. The Award sees generosity on the part of the Centre in transferring, at the expense of its own share, resources to the provinces. The previous Award rewarded the Centre with 52.5 percent of the divisible pool, whereas the present Award reduces this to 44 percent, i.e. an increase of 8.5 percent in the share of the provinces. Collection charges for taxes collected on behalf of the provinces will be cut from 5 percent to 1 percent. Sales tax on services has finally been recognized as a provincial tax and will henceforth be collected by the provinces themselves. Sindh will be given Rs 6 billion in return for agreeing to give equal weightage in the horizontal distribution of resources amongst the provinces to revenue generation and collection. NWFP will receive an additional 1 percent from the federal divisible pool as compensation for its losses and needs in the war on terror.
As far as the horizontal distribution amongst the provinces is concerned, the demand of the smaller provinces that they had been voicing since the 1980s that a multi-criteria basis be adopted instead of population alone, which favoured Punjab, has finally been accepted. The respective weightage will now be 82 percent for population (still in favour of Punjab, although reduced), 10.3 percent for poverty/backwardness (favouring NWFP and Balochistan), 5 percent for revenue generation/collection (favouring Sindh), and 2.7 percent for inverse population density (favouring Balochistan). Balochistan’s share of the horizontal distribution has risen from 7.17 percent to 9.09 percent, an increase of 1.92 percent, while those of Punjab, Sindh and NWFP respectively have decreased by 1.27 percent, 0.39 percent and 0.26 percent, a recognition of the special needs of Balochistan. The largest in area but poorest province is guaranteed Rs. 83 billion in the first year of the Award, any shortfall to be made up by the federal government. This special dispensation will continue throughout the five years of the Award’s life.
The projections of revenue and its distribution through the five years ahead seem optimistic, implying a virtual doubling of the overall revenues and therefore the respective shares of the Centre and the provinces. The caution in this respect is that this will depend crucially on economic recovery, which is also conditioned by the recovery of the global economy. There are hopeful signs of shoots of recovery domestically and internationally, but it remains a mixed picture and therefore will have to await the trends of the future.
The consensus Award untangled a knot that had defied agreement for 19 years, with arbitrary Awards intervening since 1990. It is a triumph of the consensual ability of democratic governments and political forces to resolve long standing and stubborn conundrums. Both the Centre and Punjab, and to a certain extent Sindh and Frontier, have shown magnanimity and generosity in order to cleave through the complications. Pakistan’s history has few such agreements to boast of. One that comes readily to mind is the 1991 Water Accord, also the brainchild of a democratically elected government. Such consensual agreements work to strengthen democracy, bind the federating units, and make the country as a whole more united. Their demonstrated effect is not to be underestimated. The lesson is clear: democracy works when it comes to resolving contentious issues with a credibility and legitimacy not enjoyed by authoritarian or praetorian dispensations.