The present debate on the National Finance Commission (NFC) Award is overwhelmingly skewed against the provinces and thereby presents a myopic perspective of the issue. In the absence of a critical discussion of the NFC, the centre's demand for a greater share of the divisible pool will inevitably seem the only plausible option, given that it has to fund the military, service debts, and finance national projects.
The accusation that the provinces are rent-seekers, content to milk Islamabad and contributing little in return, misreads the purpose of Article 160 of the Constitution of Pakistan, 1973, and consequently debases the nature of the contributions the provinces make towards national development. The codification of the provision requiring the federal government to distribute funds to the provinces from the divisible pool in Article 160 recognises a structural reality: the federal government holds the power to raise revenue through an eclectic range of taxes — income tax, sales tax on goods, customs duties, federal excise, corporation tax, capital value taxes, and taxes on mineral oil and natural gas and certain other minerals, as well as through various non-tax levies, such as the petroleum levy. By contrast, the provinces do not have the power to tax nearly as many subjects as the centre does under the Constitution. Yet they bear the primary burden of making public investments in areas that drive national socio-economic development: the establishment and maintenance of health services, schools and universities, law enforcement, sanitation, clean water, environmental regulation, and local infrastructure, to name a few.
An absence of meaningful focus in the ongoing debate on the essential functions that the provinces discharge effectively relegates them to the periphery, thereby strengthening the case for blaming the provinces for getting fat on federal transfers. The Nobel laureate economist Amartya Sen, in his seminal work Development as Freedom, argues that state policies that maximise individual freedom substantially contribute to a state's development. He states that policies that focus on maximising individual freedom enable people to realise their potential and act as a catalyst for their effective participation in the state's socio-economic life.
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The NFC Award is the Constitution's recognition of that reality — it is a reimbursement, not a reward; an obligation, not a favour. In his view, public investments in basic services, provided predominantly by the provinces under Pakistan's Constitution, are necessary factors that unlock individuals' capacity to lead lives of freedom and ultimately enable them to be productive members of society. The undervaluing of the provincial contribution towards national development in the current NFC narrative ignores that a true hallmark of a developed society is measured by the extent to which it invests in delivering these essential services, without which individuals will be ill-equipped to be industrious members of society.
Take the example of a factory manager employed in Lahore or Karachi, whose income tax is deducted from his salary each month by the federal government. His children attend a school supported by the provincial government. When he falls ill, he relies on a hospital that the province funds and maintains. His safety lies with the police. The provinces regulate the unadulterated food he expects to consume at a fair price, as do the roads he drives on, which are funded by the provinces, as is the clean, habitable environment he expects for his family. The goods his company sells travel on a vast network of roads built and maintained from provincial budgets before any sales tax is charged. Could he effectively participate in the nation's economy if these basic services were inaccessible to him?
The federal government's taxing powers cannot yield optimal returns in a vacuum, without the complementary role that the provinces play in providing services that stimulate individuals' capacity to contribute to society. The NFC Award, therefore, is not a reward from the federal government to the provinces. It is a political arrangement backed by the Constitution that recognises the provinces' contributions to national socio-economic development and permits them to reclaim that value. Reconfiguring the NFC to the detriment of the provinces will risk intensifying existing tensions and further entrenching the enduring sense of marginalisation among the minority provinces. Lessons from Pakistan's chequered history of provincial and ethnic discontent should guide the centre to always be circumspect about curtailing any aspect of devolution.
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However, defending the rationale for the NFC is not about offering the provinces a tabula rasa. The record of provincial governance on social service delivery remains deeply troubling, if not dismal. UNICEF notes that approximately 25 million children remain out of school and that nearly 10 million children are stunted due to a lack of proper nutrition. The centralisation of finances, however, is not a panacea. The answer lies in insisting on stronger devolution, achieved through constitutional reforms. This should include constitutionally protecting local governments by guaranteeing their continuity through fixed electoral terms and mandatory elections, as well as requiring provincial governments to allocate a set percentage of NFC funds to local governments.
In a federal system, provinces are not subordinate to the centre; they are co-equal pillars of the constitutional order, shouldering responsibilities critical to national prosperity. The NFC Award is the Constitution's recognition of that reality — it is a reimbursement, not a reward; an obligation, not a favour.
