Fiscal Deficit may wipe up arrear

WORSENING FISCAL situation of government on account of farm loan waiver and high global crude prices may hit the recommendations of long awaited Sixth Pay Commission of 4.5million central government employees. The sixth pay commission had recommended a 28 per cent hike in the salary of Central government employee, after BN Srikrishna committee has given its report on pay settlement on March 24 this year.

It appears that mounting burden on the fiscal position may force government to defer the payment of arrears from January 01, 2006 to January01, 2008, that is two years from the original recommendation of the commission. It means that for all practical purposes the sixth pay commission may become effective from January 01, 2008. However, for the employees who have retired in between intervening period government may bring some relaxation.

Here is the nitty gritty of pay panel, which may suggests deferment

The recommendation of sixth pay commission would cost Rs 12,561 crores in the year 2008-09, but the pay panel have suggested some measures, which would have saved Rs 4,586 crore in the year 2008-09, and hence burden on government exchequer on account of the pay panel hike of 28 per cent salary would cost Rs 7,975 crore (Rs 12,561 crore-Rs 4,586 crore = Rs 7,975 crore) in 2008-09. Apart from that arrear payment from January01, 2006, would have additionally cost Rs 18,060 crore as one time burden. So total burden on government exchequer in the year 2008-09, would have been Rs 26,035 crore (ie Rs 7,975crore+Rs 18,060 crore = Rs 26,035 crore).

This arrear payment of Rs 18,060 crore appears to be a stupendous amount to a government who is struggling to keep it finances intact. The coffer of government, which is draining out due to populous loan waiver scheme and high cost of oil import (and not able to pass that burden to consumers), may appear bit stretched and put the question on finances of government. Major International rating agencies are tracking each steps of government and are now threatening to downgrade the India’s sovereign ratings to risk grade, which may have long-term implications on country.

It was expected that the recommendations of new pay and its arrear payment from the effective date of January1, 2006, would have cost 0.4-0.5 per cent of Gross Domestic Product (GDP) to government exchequer. Though the burden on government finances due to the sixth pay commission was lesser as compare to the earlier pay commission the fifth pay commission but, it appears that government may take cue from boiling crude, which is playing a see-saw game in the price range of $120-$130per barrel also.

On one hand government is making people to enjoy cheap gasoline through subsidy and on the other hand it is trying to take away some ‘considerations’ from its employee itself. But the question remains is cheap oil is being enjoyed by Central government employees only? Are rich Industrialists are not enjoying same cheap petrol/diesel/cooking gas?

Government has announced farm loan waiver of Rs 60,000/- crore on the proposition that the additional revenue collection out of taxes from corporates and public and government will able to cover the cost of farm loan waiver. However, it became a debated topic as how government will be able to generate the additional revenue when growth is being sacrificed to bring down the inflation below 12 per cent. Government policy to tackle inflation at the cost of growth may dampen the additional revenue generation as slow down in economic and industrial production activity may have direct bearing on collection of taxes.

Arrears of salary a big fuss for government it may be a topic of big debate why the pay panels in India are taking such a long time in fixing the wage of government employees? Why the issues of payment of arrears are coming? Is it not possible to pass on the benefits of increase in salary as and when due? Why there should be Centralised system of wage negotiation even in government employees? Why the settlement of wage should be done after a decade? In this fast moving world when every thing is possible in minutes why government is not coming out of this old system of revising remuneration of its employee? There is no dearth of talents in Central governments services which should be utilised to come out with a solution of all this haphazard practices. There should not be a deferment of employee expenses for several years. Government should thank its huge battle of employees who have not demanded interest on their pay arrears which otherwise would have caused another Rs 1500 crore at a conservative rate of eight per cent.

Though severe strain on government finances may force government to take such harsh measures like deferment of arrears of pay panel but, seeing the huge work force of Central government it may be a tough task for government. More so since the legislation makers may themselves may get affected after such step.