AMID a fresh political debate on constitutional and financial powers of the Federation and its Units, the government on Tuesday constituted the 10th National Finance Commission (NFC) to announce a new Award for sharing of federal divisible resources between the Centre and the provinces.
Given the polarization that exists in the provinces, concluding a new Award over the years has appeared to be an impossible task. This is the reason the 7th NFC Award announced back in 2009 continues with extensions and remains in place even now instead of the constitutional term of five years that came to an end on June 2015. In the current scenario also, it appears to be unlikely that the Federation and provinces will agree to a new NFC as in recent times one has seen their serious differences on the 18th Amendment and sharing of resources. However, the new NFC is not only a constitutional requirement but also need of the hour to fix the weaknesses of the existing Award. Under the 7th NFC Award, a major chunk of 57.5% of federal divisible pool goes to the provinces. This needs to be rationalized as the Centre has to not only meet many major expenses such as debt servicing and the defence budget but in times of calamities such as being faced by the country today, the provinces always look towards the federal government for more financial assistance. Firstly it is important that the provinces fully take responsibilities of the subjects devolved to them under the 18th Amendment and then also contribute their share to debt servicing and the defence budget. There is need for creation of a jointly funded contingency fund for economic shocks and natural disasters to reduce federal/provincial structural fiscal imbalances. Then most importantly, the Centre and the provinces must increase the size of resources because without increasing the size of the cake, this country cannot grow and bring prosperity into the life of downtrodden citizens. The existing NFC also outlined that the tax-to-GDP ratio would be enhanced by one per cent every year and in five-year period it would go up from 10 per cent to 15 per cent. But this objective could not be materialized.
