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Journalism of Courage
In a snub to the recent announcement by Prime Minister Manmohan Singh about a fresh Pay Commission to review government servants’ pay packages, the Economic Survey for 2005-06 has said that such a move must be made with ‘caution’.
In his press conference on February 1, the PM had clearly hinted that it was time now for a fresh Pay Commission to review government servants’ pay packages and the government was preparing for it. But the Survey points to the impact of the Fifth Pay Commission on the government’s fiscal health to exemplify the required caution needed in setting up a Sixth Commission.
‘‘In the aftermath of the implementation of the Fifth Pay Commission’s recommendations, the general government’s fiscal deficit had increased in each of the five years to reach a peak of 9.9 per cent in 2001-02.’’
Then, in a pointed reference to the PM’s speech, the Survey goes on to say, ‘‘With the announcement of the impending constitution of the Sixth Pay Commission, there is need to exercise caution to avoid a repetition of a similar deterioration in the medium term.’’ Incidentally, after the Survey was released, Finance Minister P. Chidambaram told reporters, ‘‘We shouldn’t be straying from the path of fiscal prudence.’’
On the rise in revenue and fiscal deficits estimated in 2005-06, the Survey notes that this ‘pause’ in the targets set under the Fiscal Responsibility and Budgetary Management Act is temporary. While admitting that the government deficits, along with high global oil prices and the hardening interest rates, are ‘downside’ risks the government faces, Chidambaram said, “We will meet FRBM targets in 2006-07.”
Chidambaram also dismissed the concern over the spurt in the current account deficit as ‘an indicator of more investment in the country.’ The higher spending, pledged by the UPA’s NCMP, on education and health, has to be ‘accomplished in an overarching framework of fiscal consolidation,’ the Survey notes.
With 86 per cent of the revenue receipts in 2005-06 spent on committed expenditures like interest payments, higher allocation for these sectors needs to come from ‘incremental revenue’. Elaborating on the fears expressed by the FM about hardening interest rates, the Survey says, ‘‘Bringing down the average cost of borrowing and the interest outgo, are critical to fiscal consolidation, growth and macroeconomic stability.’’
Expressing concern over the rising subsidy bills in absolute terms, mainly on food, fertilizer and petroleum, the Survey also indicates that the FM is in favour of cash subsidies instead of food subsidies to the poor. This could lead to large welfare gains to the poor.
