After the presentation of the federal budget, came that of the provincial budgets, starting last Friday with Punjab and ending this with Baluchistan, and showing once again that the business end of government is provincial, because that is where the real delivery of service actually takes place.

The provincial level is where three very vital functions of government are funded: law and order, health and education. This is because the Constitution is assumed to be based on a federal framework, in turn because the provinces were the basic unit of governance under the Raj, to the extent that the Governor-General of India used to be, until 1911, one of the provincial, or rather presidency, governors, that of Calcutta. That was the result of the British initially ruling through the East India Company, in which the three Presidencies set up were merely meant to control certain limited commercial activity. It was only when the Company got into governance that one of the three was made Governor General, initially supposed to coordinate action rather than act as a superior, or even as a central government. However, by the time of the Mutiny, the Governor-General had become the boss, which was the model adopted when the Company was dissolved, and India became an Empire.

However, the provinces remained very powerful. It so happens that Pakistan was created in 1947 out of provinces, none of which had been a Presidency. Punjab had originally been a lieutenant-governorship of the Calcutta Presidency, after it had been conquered from the Sikh Khalsa; the NWFP (now KP) had been part of that Sikh State, but was hived under a Chief Commissioner before getting its own Governor; Sindh had been part of the Bombay Presidency before getting provincial status barely a decade before Partition. Baluchistan had only become a full-fledged province when the One Unit of West Pakistan was broken up in 1970, though it had been a chief commissioner’s province before it was formed in 1954.

One result seems to have the centre’s desire to control things. This has been done through strong political parties. Even though the political scene offers the prospect of provincialisation, political parties still want to be national.

When the Indian Constitution was written, there were two lists developed: one of federal subjects, and one of provincial subjects, with residuary subjects falling to the Centre. (A federal subject is one in which the legislative and executive authority lies with the federal legislature and government) When Pakistan wrote its two decades later, it provided for federal powers in the Federal List Part I, as well as in Part II (which were provincial subjects under One Unit, which was all that was left of Pakistan after 1971), and left the residuary powers to the provinces. That is why health, education and law and order are not mentioned in the federal lists. (Apart from the lists, there is a separate Article in the main text of the Constitution about the federal responsibility to guarantee law and order, but it remains primarily a provincial responsibility.)

Though the provinces routinely slam the National Finance Commission Award for not giving them enough money, they also escape the odium of collecting such federal taxes as the income tax, and the sales tax, which are such irritants to the taxpayer. They do collect the motor vehicle tax, as well as the property tax, which taxpayers find such a burden. However, it is perhaps not realized that the proceeds of such federal taxes are, under the Award, made over to the provincial governments, and have been their biggest source of income. It does mean that the provinces’ finances depend on federal tax collection abilities, and on how far the federal government is willing to levy the tax.

The dependence is marked. To take just one example, the Punjab is set to receive Rs 1.154 trillion from the federal divisible pool, against a current account expenditure of Rs 1.021 trillion. Combined with provincial revenue (tax and non-tax) of Rs 348 billion, that will lead to a surplus of Rs 481 billion, which will go to the development budget. The development budget has been pitched at Rs 635 billion, but the records show that the development budget allocation is never fully utilized, so an operational shortfall is always allowed, so that there is no money left over, so that all the money available is actually used.

Development spending, which is actually capital account spending, on bricks and mortar, not the running expenses, has been financed by Cash Development Loans from the federal government. These are repaid by the provinces in debt servicing, and the federal government basically acts as a post office, and merely passes the money on to the donors. The donors have long interacted directly with the provincial governments in developing and designing projects, but the federal government still insists on receiving the money and making the payments, rather than allowing the provincial governments to collect and pay directly. This is supposed to be a means of protecting national sovereignty, but all it means is that the federal government is placed under a foreign debt burden for moneys that have been expended in the province. Since the provinces do a lot of brick-and-mortar spending, this is where the bulk of corruption ends up taking place. Federal control over such corruption is only possible by action by the National Accountability Bureau, because otherwise provincial bodies, like the Anticorruption Establishment, are supposed to take cognizance of corruption by provincial officials.

Perhaps a problem with the present set of provincial budgets is that they are taking place with the National Finance Commission Award coming due. The last of the five year Awards was made in2010. While the Commission is supposed to distribute the federal tax collection between it and the provinces, and then among the provinces, it also provides an opportunity to study the financial situation of the various governments for the next five years. The end years of the NFC, and in this case the years past it, see revenue shared on what may well be false or outdated premises. In addition, one of the most important criteria of the Award’s distribution formula, population, has been measured by a census, but the results are not yet in. There is still enough time for an Award to be readied before the next election, but the government may well prefer to leave this task to the incoming governments. In fact, the Finance Ministers, who are best placed to lobby for the constitution of a Commission, should remember that this is one way that the past can bind the future, just as the Senate only comes to reflect the present provincial assemblies when those assemblies’ terms are approaching their ends, just as the Senate will only reflect the present provincial assemblies after next March. In the same way, an NFC Award next year would apply till 2023.


             The writer is a veteran journalist and

                founding member as well as executive

                editor of The Nation.