IT was democracy at work with stakeholders sitting round a table, bargaining, accommodating, and reconciling divergent views to achieve the common goal of inclusive development by a more appropriate sharing of resources in the next NFC award.
The presumption, however, about the growing size of the pie that could ensure much more resources in real terms for everyone appeared unrealistic. It demonstrated the tendency of political leaders to confuse reality with hope.
After a lapse of 19 years, a consensus National Finance Commission Award is in sight. The agreement on multiple criteria for resource distribution has created goodwill that is raising hopes among NFC members that the issues will be resolved before the turn of the current year.
Shaukat Tareen, the federal finance minister told a press conference, after the conclusion of the two-day Karachi session on Thursday that a multiple criteria based on four factors — inverse density of population, poverty, backwardness and revenue generation/collection — was accepted unanimously by the participants.
The new principle for resource distribution would replace the old criteria based on population, perceived by minority provinces to be tilted in favour of largest and most prosperous of all four provinces, Punjab.
He informed the audience that the government would generate more internal resources to increase the size of the resource pie. “We are targeting to improve tax-to-GDP ratio from current 8.9 per cent to 15 per cent over the next few years”.
He did not, however, explain how he intends to squeeze more resources from a shrinking economy without compromising prospects of economic growth that has dipped from around seven per cent in 2006-07 to two per cent. He pointed out curtailment of the federal government non-productive expenses but stopped short of explaining how the government intends to go about it.
The policy of ‘stabilisation first’ could backfire by depressing corporate earnings, savings and capital formation, reducing the tax potential.
“The federal government’s move to improve resource generation and bring down the current account deficit by increasing levies on basic utilities will hurt both, consumers and producers, said an economist.
“Higher rate of indirect taxation means net resource transfers from the people to the government. It would depress the purchasing power of people and trim the size of domestic market. Higher utility cost would jack up the already high cost of doing business rendering it uncompetitive. It would discourage fresh investment and put expansion plans on hold. No economy where both consumers and producers find the environment hostile can achieve high growth rate”, he explained.
Tareen informed that the federal government has accepted a long standing demand of the provinces to increase their percentage share to over 50 per cent in the new NFC award. He clarified that there will be no duplication in taxation and the constitutional right of provinces to tax services would be restored.
Explaining reasons of not sealing the agreement on the vertical distribution of resources he said: “Once horizontal distribution has been worked out to the satis faction of all parties, we intend to return to vertical distribution framework to make necessary adjustments by giving direct grant to the province that bear the financial burden of the new formula so that at the end of the day it is a win/win situation for all”.
Many participants of Karachi meeting contacted by this writer after the session expressed satisfaction over progress made so far. To a question as to what made representatives of the provinces to adopt an accommodative approach, the response was, “Where there is a will there is a way. The marathon sessions of NFC since August 2009 made us realise that even if all irritants between provinces could not be ironed out, now is the time to take the first step by agreeing on the basics”, a participant said on condition of anonymity.
“The enormity of the challenges facing the country forced provinces and the federal government to adopt a pragmatic and flexible stance to make a decisive move towards early conclusion of National Finance Commission award”, said another participant.
“It was not as smooth as some may tend to assume. Balochistan agreed to sign on the dotted line only on the assurance of the federal minister that its claim of arrears of Rs150 billion as gas development surcharge would be included in the Balochistan package that would be announced shortly by the government”, an insider told Dawn.
“The NWFP agreed to soften its position on the assurance that it would be given additional resources from a fund created for covering the cost of destruction and damage that northern areas had to incur because of its location adjacent to war zone” another source told Dawn.
Shaukat Tareen said that allocations would be made to create a fund to fight terror from consolidated funds. “We have decided to deduct one per cent from the total. Let it be clear that the deduction would not be made from the divisible pool but overall funds”, he mentioned. It was however not clarified if other provinces affected by the activities of rogue elements could ask for money from the fund or it would be NWFP specific.
Sindh’s insistence to include revenue as the fourth factor was conceded but lack of relevant data to substantiate the varied position on collection or generation of revenue led to postponement of the issue to the next meeting.
“There was a heated debate and Punjab particularly expressed its reservation over Sindh’s plea to treat revenue collection as another basis determining the resource sharing formula. It held that a sizeable portion of revenue was collected in Sindh because many company headquarters were located in the port city but the actual generation of wealth takes place at plants located not necessarily in Sindh”, informed an insider.
The representatives of Sindh also asked for compensation for additional pressure on its infrastructure because of massive internal migration to Sindh. Referring to this point, Shaukat Tareen said in his press conference: “Those who come to Sindh in search of better economic prospects cannot be treated as dead burden. They actively participate in the economic activities and might be creating more wealth than what they consume or save here. Besides, it is one state and there cannot be any bar on mobility of manpower within a country”.
A representative of smaller province said, for poverty the status of a district in terms of absolute number of poor would disproportionately benefit more populous provinces. So there was discussion to consider human development index and ranking of districts on the basis of HDI, accepted to be a more accurate indicator.
“There was a realisation amongst rep resentatives of Punjab that regional disparities have reached a stage where they pose a threat to the integrity of the state and therefore they would be required to display highest degree of patience in accommodating positions of smaller provinces”, said another member of NFC privately.
The country lost its eastern wing back in 1971 because the military dictatorship failed to redress the grievances of the people of the former East Pakistan and used force to suppress the insurgency.
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