A hike of 23.55 per cent in emoluments, including pay, allowances and pension, for the 47 lakh serving employees of the Central government and 52 lakh pensioners has been proposed by the Seventh Pay Commission, headed by Justice A K Mathur, which submitted its report Thursday to Finance Minister Arun Jaitley.
While the proposed hike in salaries could potentially offer a boost to consumer spending, the cumulative impact of the proposals, which include a recommendation of a virtual one-rank-one-pension scheme for civilian Central government employees, entail a total additional outgo of Rs 1.02 lakh crore a year.
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The recommendations, to be implemented from January 2016, are expected to dent the finances of both the Centre and, subsequently, state governments — who will follow suit — and may force pruning of development expenses. Early indications point to the Centre’s willingness to accept the recommendations. Finance Secretary Ratan Watal said that the government can “handle” financial implications of the recommendations and will work out modalities for implementation of the suggestions.
The minimum pay for a Central government employee will go up to Rs 18,000 per month from Rs 7,000 currently while the maximum pay would go up to Rs 2.50 lakh per month from Rs 90,000 currently. “The total financial impact in the FY 2016-17 is likely to be Rs 1,02,100 crore, over the expenditure as per the ‘Business As Usual’ scenario. Of this, the increase in pay would be Rs 39,100 crore, increase in allowances would be Rs 29,300 crore and increase in pension would be Rs 33,700 crore,” the report said.
In order to roll out the recommendations, the government would constitute an implementation secretariat and an empowered committee. The former will be under the Expenditure Secretary while the latter will be headed by the Cabinet Secretary with members drawn from different government departments involved with the recommendations. “Therefore if any representations come from any segment, they take a view,” the Finance Minister said. He added that while the exercise had taken over five months during the previous government, attempts will be made to wrap up the exercise sooner.
Of the total financial impact, Rs 73,650 crore will be borne by the general budget and Rs 28,450 crore by the Railway budget.
On the financial hit, Watal, who also holds charge of expenditure, said: “There are challenges, we will face that… It’s not going to impact this fiscal. By the time it is implemented, it goes into next financial year and our growth prospects are good, our economy is pretty robust, we will handle this.” The Secretary said that the finance ministry would look at how to channelise the increase in money in the hands of people to long-term saving instruments.
Economists said that while the move will have budgetary implications, it will act as a stimulus. “The development will boost economic growth and have dynamic impact. If monsoon remains normal next year, then it will boost and create conditions for revival of private consumption,” D K Joshi, chief economist, Crisil, said. He added that the government will have fiscal space for implementing the recommendations as long as oil and commodity prices remain low.
The government had unveiled a fiscal consolidation roadmap in the Budget according to which fiscal deficit was to be brought down to 3.9 per cent of GDP in 2015-16, 3.5 per cent in 2016-17 and 3 per cent by 2017-18. In the medium-term expenditure framework statement laid before Parliament on August 13, the finance ministry had said salary and pension expenditure is expected to rise by 15.8 per cent and 16 per cent, respectively, in 2016-17.
According to the recommendations, the Seventh Pay Commission has suggested doing away with the grade pay and pay bands and replacing it with a new pay matrix. The rate of annual increment has been retained at 3 per cent. Further, the commission has also made performance parameters for Modified Assured Career Progression (MACP) more stringent. It has been benchmarked from “good” to “very good” while those who are unable to meet the benchmark will not be granted the annual increment.
The previous United Progressive Alliance (UPA) government appointed the Seventh Pay Commission on February 28, 2014. The central government constitutes the pay commission every 10 years to revise the pay scales of its employees and these are usually adopted by states after some modifications.