The Cabinet on Wednesday approved the recommendations of the Seventh Pay Commission on pay and pension, a move which will boost consumption by putting extra disposable income in the hands of the central governments 4.7 million employees and 5.3 million pensioners.
The cabinet, however, deferred the revision in allowances. A committee headed by finance secretary Ashok Lavasa will look into the pay panel recommendations in this regard as there were resentment among employees over the suggestions to scrap four allowances. Till then, existing allowances will continue.
The Seventh Pay Commission (7th CPC) had recommended a 23.5% increase in pay, pension and allowances under a business as usual scenario. It had envisaged an increase in pay of Rs 39,100 crore, increase in allowances of Rs 29,300 crore and increase in pension of Rs 33,700 crore, taking the total financial impact for 2016-17 to Rs 1.02 lakh crore.
Out of this total amount, around Rs 73,650 crore was to be borne by the Union budget 2016-17 and the rest by the railway budget, the 7th CPCs report had stated.
The pay panel revisions are in force retrospectively from January 1, 2016.
However, with allowances deferred the burden on the exchequer would be Rs 72,800 crore on account of salaries and pension and over Rs 12,000 crore on account of arrears, aggregating to Rs 84,933 crore. Of this Rs 60,608 crore would come on the General Budget and Rs 24,325 crore on the Railway Budget.
On account of salaries and pension, the burden on the exchequer would be around Rs 52,000 crore. Out of that amount, the budget had factored in Rs 32,000 crore. So the rest will be asked for through supplementary demands in the upcoming sessions of Parliament.
The minimum pay, as cleared by the cabinet, has been raised from Rs 7,000 crore to Rs 18,000 per month while the maximum pay has been capped at Rs 2.5 lakh per month.
Likely To Cost Govt Rs 1.12 Lakh Crore
The 23.5% average hike in central government employees salaries could push up the governments wage bill, including arrears, by an estimated Rs 1.14 lakh crore in 2016-17, experts said on Wednesday.
But the Centre is confident of containing the fiscal deficit — a measure of how much the government borrows to fund its expenses — within the budgeted 3.5% of gross domestic product (GDP).
Keeping the fiscal deficit within budgeted limits is crucial to keeping interest rates under check.
Higher government borrowing can potentially affect the funds available for banks to lend to companies and individuals. This, in turn, can prompt banks to raise interest rates.
The fiscal impact will not be much as it (the money) has been provisioned for in the budget this will be positive for the economy as it will support domestic consumption and with Brexit and overall global uncertainty, this could spell good news, said DK Joshi, chief economist at Crisil.
Finance minister Arun Jaitley said that excluding payment on allowances, the total outgo during this year including arrears from January 1, 2016, will be Rs 84,933 crore in 2016-17.
The government will take a call on the commissions decision on allowances after a secretaries panel submits its report.
The Centres total salary and allowances bill for 2016-17 is Rs 1.84 lakh crore, 55% higher than last year. The higher bill partly factors in the anticipated increase in employee remuneration.
In recent years, Indias precarious public finances have attracted unsparing criticism from global credit rating agencies amid a looming risk of downgrade of sovereign ratings.
Analysts are watching how the government manages its public finances in the wake of off-budget expenses such as those relating to one-rank-one-pension (OROP) scheme for defence personnel and expected pay commission payouts.
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