Published On: Fri, Dec 25th, 2015

Seventh Pay Commission award is affordable, says govt

New Delhi: Seventh Pay Commission award that takes effect in April will increase the country’s total pay bill about Rs 1,02,000 crore, according to the central government that can be afforded.

Finance Minister Arun Jaitley

Finance Minister Arun Jaitley said government would be able to meet its target despite additional outgo towards the implementation of the Seventh Pay Commission award.

The 900-page report of the 7th Pay Commission headed by Justice A K Mathur was presented to Finance Minister Arun Jaitley on November 19 with a recommendation for raising minimum pay to Rs 18,000 per month from current Rs 7,000 while the maximum pay, drawn by the Cabinet Secretary, has been fixed at Rs 2.5 lakh per month from current Rs 90,000. For the Secretaries it has been fixed at Rs 2.25 lakh as against Rs 80,000 currently.

The pay commission award is from Januray 1. 2016 but it is likley to be implemented from next years and employees paid arrears.

The panel recommended a 14.27 per cent increase in basic pay, the lowest in 70 years. The overall increase in salary, allowances and pensions is 23.55%. The increase in allowances will be higher by 63% while pensions will rise 24%.

The breakup total estimated increase of about Rs 1,02,000 crore would look like: the increase in salary would account for Rs 39,100 crore, allowances Rs 29,300 crore and pension at Rs 33,700 crore.

The Sixth Pay Commission’s recommendations were implemented in August 2008, with a retrospective effective date of January 1, 2006, which gave almost Rs 18,000 crore in the form of arrears to the central government employees.

The biggest number of central government employees out of the estimated increase being impacted by the allowances such as HRA (house rent allowance) and partially towards paying higher pensions to the retirees.

The estimated additional Rs 1.02 lakh crore to be paid out will attract income tax that may reduce the money actually in the hands of the central government employees by about 20-30 per cent depending upon the applicable tax slab.

The economic think tank said that that fiscal burden of Rs 1.02 lakh crore would further hamper the government’s ability to push capital expenditure due to the higher salary outgo.

While Minister of State for Finance Jayant Sinha said on October 19, “Increase in salary bill due to Seventh Pay Commission will not strain government’s fiscal position.”

He made it clear while interacting with reporters after a meeting of economists which was chaired by Finance Minister Arun Jaitley at NITI Aayog, that the government’s fiscal position is strong enough to bear the impact of implementation of Seventh Pay Commission.

A day after the Seventh Pay Commission proposed 23.55 per cent rise in salaries and pensions of central government employees, the Economic Affairs Secretary Shaktikanta Das expressed confidence that the fiscal deficit targets will not be breached because of absorbing the Rs 1.02 lakh crore bill.

He also said, “The government always has broad estimation of what is going to be the impact of a new pay commission recommendation and accordingly internally a kind of risk matrix is prepared.”

Finance Secretary Ratan Watal also said the government would be able to take the increase in its stride.

“There are challenges, we will face that,” he said. “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.” Watal is also expenditure secretary and will have the task of juggling spending to accommodate the generous award.

RBI Governor Raghuram Rajan said on December 1, the Seventh Pay Commission recommendations will not upset fiscal maths as additional expenditures will be offset by either surplus revenues or expenditure cuts, while he was addressing reporters after the monetary policy statement.

Finance Minister Arun Jaitley said on December 4 at the HT Leadership summit that he was not worried about fiscal deficit and government would be able to meet its target despite additional outgo towards the implementation of the Seventh Pay Commission award, which will result in an additional annual burden of Rs 1.02 lakh crore on exchequer, would last for two to three years.

Accordingly, the central government pointed out that despite the controversy over the implementation of the Seventh Pay Commission award, there had been broad political agreement that the Pay Commission recommendation, which increases the central government employees’s pay, will be implemented in next financial year to help the employees without damaging their financial prospects.


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