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n rural and urban income in Baluchistan is lesser, the reason is lack of development in its urban areas. Its urban areas are less developed as compared to that of other provinces, because of lesser economic opportunities in cities.

 

If we look at the historical trends, the first NFC award of 1947 had fewer taxes in the revenue pool. But in 1991 award, some improvements were seen in the revenue distribution. More taxes were made part of distribution pool. In addition, the right of provinces to get royalty on natural resources was given to them on the basis of collection by each province. The divisible pool was further expanded in 1996 award by the inclusion of all the federal taxes. 1996 award moved a step forward towards fiscal decentralization. It also introduced the incentive of matching grants to provinces. But if we look at the grey areas of this award, the expansion of distribution pool resulted in the contraction of provincial share. The federal-provincial share in the pool changed drastically from 20:80 to 62.5:37.5 percent respectively. So practically, no significant developments were observed in actual revenue transfers to provinces. Consequently, provinces fell short of funds and trapped in budget deficits. Considering the miserable situation of Baluchistan and Khyber Pakhtunkhwa, special grants of 4 and 3.3 and billions rupees were awarded to them respectively for the next 5 years.

 

Due to the constant pressure and demands from the provinces, government increased their share in the revenue pool to 45 percent in 2006 interim award. Just the provincial share was increased, no innovation was made in the resource sharing mechanism and it was still at its old population standards. Baluchistan and Khyber Pakhtun Khwa were demanding revenue distribution on the basis of poverty. The poverty ratio in Baluchistan is 37 percent and that of Khyber Pakhtunkhwa is 44 percent. However, no diversification was made in the distribution criteria.

 

One of the main reason which hindered the development of NFC awards is the conflicting demands of provinces over the resource sharing mechanism. The criteria of revenue dispersal between the center and provinces has always been a matter of conflict between these two tiers of government. Four out of seven NFC awards remained unproductive and unsettled amid this hostility. The complaints of the provinces were heard when the central government agreed to give provinces 40 percent share in the divisible pool with addition of 1 percent every year till the next 5 years. But there is an argument from Federal government’s point of view that whenever the share of provinces has increased it gave rise to non-development expenditure which is unproductive. The reason is provincial governments don not have specific development programs in place as well as capacity to raise the living standards of people. The poverty ratio in Baluchistan is 37 percent and that of Khyber Pakhtunkhwa is 44 percent, but provincial governments failed to formulate an appropriate strategy to reduce these disparities.

 

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