July 15, 2008	Tuesday	Rajab 11, 1429

ISLAMABAD, July 14: The federal government has received nominations from provinces for a new National Finance Commission (NFC) to work out an agreed formula for distribution of resources between the centre and the federating units.

A senior official of the finance ministry told Dawn that the prime minister’s secretariat would soon be sending a summary to the president to notify the names of the private and non-statutory NFC members.

Mr Saeed Qurashi has been nominated by Punjab, Mr Kaisar Bengali by Sindh, Senator Haji Mohammad Adeel by the NWFP and Dr Gulfraz Ahmad by Balochistan.

The officials said the new NFC would be for five years and its immediate job would be to prepare a resource distribution formula.

The government is reported to have been advised to take systematic decentralisation measures and encourage provinces to generate their own revenues. This would help to reduce their dependence on the centre.

The last NFC was constituted on July 21, 2005, but it failed to achieve consensus among the members on a mechanism for judicious resource distribution. This gave rise to a deadlock and eventually the provincial chief ministers authorised the president to announce an award. The president, under Article 160(6) of the Constitution, amended the “Distribution of Revenues and Grants In Aid Order, 1997” and announced the new NFC award which took effect on July 1, 2006.

Sources said that Punjab continued to insist that the new formula should be based on population. However, other provinces are against making population the sole criterion for resource distribution, saying that as in most other countries factors like revenue generation, poverty, population density, income distribution and backwardness should be taken into account while finalising the award.

Under the present formula, total subvention/grants for provinces were enhanced from Rs8.7 billion to Rs27.75 billion and it was promised that these would be further increased in line with the growth of net proceeds. Punjab and Sindh which had not been given any grants in the previous award, were entitled to receive Rs3.05 billion and Rs5.83 billion respectively. The total increase in the resource transfer from the federal to provincial governments in the form of share and subventions was of almost Rs51bn.

The other important aspect of the award was an increase in straight transfers of royalties on gas and crude oil, excise duty on gas and gas development surcharge. In addition, the NWFP government is also receiving net hydel profit from Wapda at a capped level of Rs6 billion a year. These amounts are to substantially increase over time. Sindh receives the amount through straight transfers.

The current NFC award gives the provinces a higher control on their monetary resources.

In addition to straight transfers, the federal government under the Public Sector Development Programme (PSDP) also finances different development projects in the provinces either fully or on 50:50 basis. The non-development funds transferred to provinces include compensation for victims of natural calamities. Under the award, the provincial share was revised to 45 per cent (share in total divisible pool + grants) for the first financial year, to eventually reach 50 per cent with subsequent increases of 1% per annum.