- NFC Awards are meant to make provincial finances sustainable
The constitution of the 10th National Finance Commission was inevitable, after the 9th Commission, like the 8th, failed to make an Award. The present Award, which expires with this financial year, was made by the 7th Commission, and provided nothing beyond what was contemplated.
The NFC is an essential part of the federal mechanism. Some would say it is the most important part, for it gives money to the provinces, and thus enables them to carry out their purposes. Especially in view of the provinces not being able to raise revenue from the taxes which the federation raised, it has been thought suitable to guarantee them a share in the federal taxes which are, it is pointed out, raised from the provinces. The formation of a finance commission, and the division of money between the centre and the provinces, was started, as were many other things, by the British. Both dominions have inherited the mechanism.
In essence, there is a two-stage process. There is first a split between the centre and the provinces. Then there is the split among the provinces. The provinces have taken views favouring their situation. The NFC is also supposed to consider expected expenditures, and the NFC has primarily concerned itself with provincial finances. After each NFC, the provinces have usually been better off than before, but by the end of each award period, they have usually been finding it difficult to make ends meet. This position is magnified by the fact that Awards are meant for five years, but tend to take place at longer intervals. The absence of an Award is usually met by an extension of the existing Award, and this was done when the 7th Commission’s Award expired after the statutory five years.
The problem is that the current Award has made a split which took account of the additional burden because of the transfer of some departments from the federal government to the provincial, resulting in the provinces needing more money to pay for them. Because of the division, which has given the provinces 35 percent, the federal government has found that it has simply not got the money to afford the kind of money the defence services have grown used to.
That a government so closely aligned to the Army’s wishes should introduce such a concept, where none existed before, and which could be seen as abandoning the principle of centralization that is behind all government, and manifestly so in the case of a federation, was not to be expected. Paradoxically, that very centralizing principle which is propounded the Army and its supporters, is being invoked, and may tear apart the federation
The Terms of Reference of the present NFC seem designed to deal with this issue, though it may well be opening a Pandora’s Box which would throw up in the air the very existence of the federation, and which questions the very need for one. That has been by making it consider ways for the centre to charge the provinces for defence and disaster management. The need to charge for disaster management seems to have come from the vast sums the federal government is having to mobilise to meet the coronavirus expenditures.
Though the concept of charging for defence might serve as a means of overcoming the Constitutional bar on revising downwards provincial shares, it puts up for debate all federal functions, and whether they should be charged for it. Is the federal government going to charge for conducting foreign affairs? For issuing stamps? The provinces do charge for resources, but only those included in the Constiution already. Sindh and Balochistan both receive royalties for the gas produced within them, and KP receives royalties for the hydel electricity produced within it. Punjab put forward a claim for royalty on its production of wheat, but it was not allowed, mainly because there was no constitutional provision mandating such a charge.
That was not the only issue. There was the issue of the basis of interprovincial distribution. Until the Seventh Award, the basis was population, but Sindh pressed for origin of taxes, and Balochistan for area. There was continual resistance, but that Award saw a small weightage for tax origin conceded. That would probably mean that there would be an attempt to increase this weightage, so as to make up for the federal charges.
It should not be forgotten that the concept of the federal government charging for services provided (it already charges citizens in the shape of taxes; this is the first time it would charge the federating units) will probably not be limited to defence and disaster management, but may well crop up again. If it is not conceded by the provinces in this Commission, they will crop up again.
Disaster management may appear a temporary charge, but as the Prime Minister has said, the pandemic can be expected to become endemic, and it is likely that these measures will last. If they do, then so will the charges go beyond the five years of the Award period. Also, while the covid-19 pandemic is the disaster in mind, there are other disasters recurring, like the annual floods. There appears a doubling; for the floods usually see the armed forces take a leading role out of their own budget. Now, one can expect the provinces to be presented a bill.
There are two issues that the defence services and the federal government may not have thought about. The provinces have so far stayed out of defence matters. But now they will have to intervene. After all, they will be paying hard cash. Besides, what happens if any province complains it is not satisfied with the quality of the defence it is paying for? What if it presents a list of steps it thinks should be taken? More sensitively, what if it complains about recruitment or promotion policies?
It is a little surprising that a strongly centralizing party like the PTI would be responsible for a step which calls into question the basis of the federation. Internal order, external peace, and the freedom of the highways have been the duties of the state from time immemorial. While the provinces originated in the British East India Company’s three presidencies, the Indian central government was established later, when the Governor of the Calcutta Presidency was made Viceroy of India.
How Pakistan’s provinces originated from this (and let’s not forget how the native states were involved) is a long story, but we seem to be coming to what the Company had: three separate armies, one for each Presidency, though there was a single Commander-in-Chief, under the Viceroy. The provinces already have at least one separatist movement each, and the present TORs are probably going to lead to the provinces demanding separate forces. The pattern of the pre-Partition State Forces may be dragged up.
If provinces use this as a lever to get into defence policy, will it be possible to keep them out of foreign? Each borders at least one neighbor, and two are maritime. Will the armed services be able to do their job in the midst of running commentary by the provinces? The present situation, where provinces are ruled by opposition parties, cold be explosive. Imagine the present Sindh government commenting on defence and foreign policy, seen solely through the prism of Sindh’s border with India.
That a government so closely aligned to the Army’s wishes should introduce such a concept, where none existed before, and which could be seen as abandoning the principle of centralization that is behind all government, and manifestly so in the case of a federation, was not to be expected. Paradoxically, that very centralizing principle which is propounded the Army and its supporters, is being invoked, and may tear apart the federation.