GOVT EMPLOYEES WAIT FOR THEIR RAINFALL - 7TH PAY COMMISSION

By Ruma Dubey

Tomorrow, the all-important and most eagerly awaited Seventh Pay Commission could get the go-ahead. It is sure to turn the Govt employees into one happy lot. Not just rains but a bountiful pay check – what more could they ask for!

A quick look at what the Pay commission has put forth:

• Minimum Pay recommended at Rs.18,000 per month, up from current Rs.7,000.
• Maximum Pay has gone up to Rs.2,25,000 per month for Apex Scale and Rs.2,50,000 per month for Cabinet Secretary and others presently at the same pay level.
• These higher salaries and arrears were effective January 1, 2016, the date from which the recommendations were made applicable – this means employees get new higher salaries and arrears for 6 months and then current.
• There will be a 10% deduction on the arrears and increased salaries towards National Pension System.
• It will benefit 47 lakh central government employees and 52 lakh pensioners.
• This is estimated to put an additional burden of Rs 1.02 lakh crore, or nearly 0.65% of the GDP, on the government.
• This is to be borne by Financial Budget - Rs 73,650 crore and the Railway Budget by Rs 28,450 crore.
• For the first time, introduced a health insurance scheme for staff and pensioners.
• Doubled gratuity ceiling to Rs.20 lakh.
• The total impact of the Commission’s recommendations are expected to entail an increase of 0.65% points in the ratio of expenditure on (Pay+Allowances+ Pension) to GDP compared to 0.77% of Sixth Pay Commission.
• Staff pay is adjusted for inflation every six months through the so-called dearness allowance, fixed salaries are revised once in about 10 years.
• It is expected that the increased salary and arrears would take effect from August 1, 2016.

This is good news for the Govt employees but for the Govt itself, it could mean that it puts a question mark of the Finance Minister’s ability to cope up with expense. When this Pay Commission was mooted, crude was hovering between $35-40/barrel and inflation was low. Today, crude’s new benchmark is $50/barrel and CPI has raised its ugly head already, expected to get only worse till winter. There is no doubt that the implementation will stoke inflation only further. At the same time, Brexit could come as a blessing in disguise as it could keep a lid on crude prices as UK and European economies are expected to bear some brunt.

Despite this, its good news as more money in the hands of people means demand would get the much needed kick.

It is usually seen that when Pay Commission hikes salaries, demand for cars, two-wheelers, electronics and consumer durable usually perks up. Thus if implemented soon, all the companies in these sectors could have report a much better performance in coming Q2 and Q3.

The fiscal impact will be there, irrespective of the Govt saying that it is nothing to worry about. The impact will be spread over the next two fiscals – FY17 and FY18 as this is an additional expenditure and the Govt has not exactly been able to meet its divestment targets yet. Not to forget, there is the burden of One-Rank-One-Pension (OPRP) too which will have to be accounted for. So where is the money going to come in for the expenses that the Govt will now have to pay for?

The divestment target was set for Rs.69,500 crore in FY16 and managed to raise Rs.12,600 crore, which is 18% of the total FY16 target. For FY17, the target has been set at Rs.56.500 crore. The Govt is expecting most of the money to come from the indirect and direct tax revenues. Somehow, in this context, one could not help but wonder whether the salaried class would be burdened further. As such we are reeling under the service taxes we need to now pay up.

Well, lets see where this takes us all. The boat has set sailing…