Understanding NFC Award

When we were in college, we often heard about the NFC Award. We used to discuss it with our friends, speculating that it might be another type of award similar to other awards. We perceived it as something akin to the Nobel Prize, given to people. Later, many talk shows also critiqued it, and some people expressed regret for not being a part of it. So, we didn't understand what the NFC Award was and how it was distributed. But later, we found out that it wasn't exactly an award, but rather the name of a formula. According to this formula, the government budget is divided. The government collects money from the public through taxes, including income tax, sales tax, and various other forms of taxation. The money gathered by the government through these taxes, which is then redistributed among the public using a formula, is called the NFC Award, which stands for the National Finance Commission Award.

Before Pakistan's creation, there was a separate award under British law called the "Niemyer Award." After Pakistan came into being, its first Prime Minister, Liaquat Ali Khan, introduced an award known as the "Raiseman Award," which later became the NFC Award.

So far, seven NFC Awards have been given. The first official NFC Award was presented during the tenure of Zulfikar Ali Bhutto in 1974. According to Article 160 of the Constitution, its duration is five years. The President of Pakistan announces the NFC Award. The NFC Award is a commission, chaired by the Federal Finance Minister, and its members are selected from each province.

Next comes the formula for distributing the NFC Award. It is distributed in two ways: vertical distribution and horizontal distribution. In vertical distribution, 42.5% goes to the federal government, while 57.5% is allocated to provincial governments. For example, if the total budget of Pakistan is 100 rupees, then 42.5 rupees go to the federal government, and 57.5 rupees are distributed among the four provinces. Now, we have horizontal distribution, based on population. The province with a higher population receives a larger share. This is why Punjab used to receive 82% of the NFC Award because its population was higher than all the other provinces. Due to the higher population, Punjab received a larger share in every NFC Award. On the other hand, Khyber Pakhtunkhwa and Balochistan received a smaller share due to their lower populations and higher poverty.

After the merger of FATA in Khyber Pakhtunkhwa in 2018, the population increased significantly, and now the province has more districts. So, the percentage that Khyber Pakhtunkhwa used to receive in the NFC Award is no longer sufficient. The Khyber Pakhtunkhwa government demands an increased share because the formula remains the same, while the population and the number of districts have changed.

In 2010, the People's Party government modified the formula and introduced four new criteria, including population, revenue generation, poverty, and an area-density factor. The area-density factor calculates how many people live in one square kilometer, while the population density factor is the opposite. With the introduction of these four criteria in the NFC Award, the distribution is no longer solely based on population but also considers poverty and the least populated area, which benefited Balochistan as well. Thus, the share of Balochistan increased from 3% to 9%, and Khyber Pakhtunkhwa's share went from 13.3% to 14%.

Khyber Pakhtunkhwa's population increased to over five million after the FATA merger, and the number of districts also grew. So, the share that the province used to receive in the NFC Award is no longer sufficient. The Khyber Pakhtunkhwa government is demanding an increased share. However, there has been no new formula established yet