After 14th Finance Commission, 7th pay panel’s report looms : LiveMint
Finance ministry fears that its revenue will be affected in 2016-17 as it has to absorb new pay panel recommendations
New Delhi: After the recommendations of the Fourteenth Finance
Commission (FFC) forced the government to reduce its plan expenditure in
the 2015-16 budget, the Union finance ministry fears its revenues will
remain constrained in 2016-17 as well since it has to absorb the
recommendations of the Seventh Pay Commission (SPC) in that year.
The Seventh Pay Commission will submit its report by October 2015.
“The 7th Pay Commission impact may have to be absorbed in 2016-17. The
phase of consolidation, extended by one year, will also be spanning out
in this period. Thus, in the medium-term framework, the fiscal position
will continue to be stressed,” the finance ministry said in the
macroeconomic framework statement laid before Parliament along with the
budget on Saturday.
The government appointed the Seventh Pay Commission on 28 February 2014
under chairman justice Ashok Kumar Mathur with a timeline of 18 months
to make its recommendations. Though the deadline for submitting the
report ends in August this year, the Seventh Pay Commission is likely to
seek extension till October.
The Sixth Pay Commission which was constituted in October 2006 had submitted its report in March 2008.
As a result of the recommendations of the Sixth Pay Commission, pay and
allowances of the Union government employees more than doubled between
2007-08 and 2011-12—from Rs.74,647 crore to Rs.166,792 crore, according
to the Fourteenth Finance Commission estimates.
“As a ratio of GDP, it jumped from a little over 0.9% in 2007-08 to 1.2%
in 2008-09 and about 1.4% in 2009-10 on account of both pay revision
and payment of arrears. However, it moderated to little over 1% in
2012-13,” the Finance Commission said.
The recommendations of the Sixth Pay Commission were implemented by
states with a delay mainly between 2009-10 and 2011-12, with
“significant expenditure outgo” in arrears on both pay and pension
counts, the FFC said.
The FFC said that while the finance ministry projects an increase in
pension payments by 8.7% in 2015-16, a 30% increase is expected in
2016-17 on account of the impact of the Seventh Pay Commission, followed
by an annual growth rate of 8% in subsequent years.
However, it maintained that given the variations across states and the
lack of knowledge about the probable design and quantum of award of the
Seventh Pay Commission, it is neither feasible, nor practicable, to
arrive at any reasonable forecast of the impact of the pay revision on
the Union government or the states. “Further, any attempt to fix a
number in this regard, within the ambit of our recommendations, carries
the unavoidable risk of raising undue expectations,” added the Finance
Commission.
A senior Pay Commission official, speaking under condition of
anonymity, said its recommendations will surely have significant impact
on the revenues of the central government. “The 14th Finance Commission
was at a disadvantage since it did not have the benefit of the
recommendations of the Pay Commission unlike its predecessors,” he
added.
N.R. Bhanumurthy, professor at the National Institute of Public Finance
and Policy, said the FFC has tried to factor in the impact of the
recommendations of the SPC on the central government expenses. “The FFC
report shows the capital outlay of the central government will dip in
2016-17 to 1.4% of GDP from 1.64% a year ago due to the implementation
of the Pay Commission recommendation before it starts rising to 2.9% of
GDP by 2019-20,” he added.
The FFC said that all states had asked it to provide a cushion for the
pay revision likely during the award period. The FFC advocated for a
consultative mechanism between the centre and states, through a forum
such as the Inter-State Council, to evolve a national policy for
salaries and emoluments.
The FFC also recommended that pay commissions be designated as Pay and
Productivity Commissions, with a clear mandate to recommend measures to
improve productivity of employees, in conjunction with pay revisions.
“We recommend the linking of pay with productivity, with a simultaneous
focus on technology, skills and incentives. We urge that, in future,
additional remuneration be linked to increase in productivity,” it
said.
The Pay Commission official quoted earlier said it has been mandated to
recommend incentive schemes to reward excellence in productivity,
performance and integrity, which it will do. “Though previous Pay
Commissions have talked about linking pay with productivity, the earlier
governments have not accepted such recommendations. Since this government has shown strong political will, we hope they will accept our recommendations,” he added.
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