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Friday, 01 July 2016 03:56
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Shobhana's edit

Pay Panel raises fiscal burden, some hope on perks

Finance minister Arun Jaitley may have said, at the Times Literary Festival some months ago, that the money spent on the Seventh Pay Commission (SPC) was at the expense of irrigation and poverty alleviation, but it was never going to be easy to pacify the unions. So, he has tried to contain the damage by postponing the payment of allowances. Though SPC did nothing to fix the terrible anomaly of paying peons/drivers 3-4 times the market salary, and top bureaucrats a small fraction, hopefully the allowances’ committee set up by Jaitley will try and rationalise them. What has been suggested is a whopping 63% increase in allowances, including a steep 138% hike in house rent allowances (HRA)—with these adding up to around Rs.30,000 crore across the government and the Railways, the best one can hope for is they will be paid prospectively. Since the hike in HRA itself would have hiked CPI by 40-45bps, postponing this will mean the CPI impact of the SPC may not be much in FY17.

Even without the allowances, the tab in FY17 will be Rs.84,900 crore—including arrears—of which Rs.60,600 crore relates to the government. Since the budget has put aside around Rs.43,000 crore for SPC, if the allowances are given in FY18, the shortfall is likely to be around Rs.17,000 crore. As Jaitley wouldn’t wish to cut back on capex—already at a very modest Rs.2.47 lakh crore—at a time when the private sector is barely investing, some additional borrowing may be on the cards. While it is early days yet to talk of a slippage in the fiscal deficit from the targetted 3.5% of GDP, the Rs.56,500-crore target for disinvestment and strategic sales looks challenging—just Rs.23,512 crore was mopped up last year —which means LIC could be asked to step in again. The telecom revenue assumptions of Rs.99,000 crore were very ambitious—stripped of the annual telecom licence fees and the deferred payment from earlier auctions, this implied the next auction would have to fetch Rs.2.4 lakh crore as compared to Rs.1.1 lakh crore last year. But with the government likely to change the rules to take 50% of the bid up-front as compared to 33% earlier, the shortage may not be as bad. Since it is not clear whether increased tax collections from the SPC payout have been factored in, this may help. How much the SPC payout will boost the economy, though, depends on whether other expenditure are cut to accommodate it—that will become clear only later in the year and will also depend upon the shortfall in budget revenues.


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