Seventh Pay Commission award can be staggered, made more generous

National Institute of Public Finance and Policy Director and Member of the Seventh Pay Commission Rathin Roy spoke to The Hindu on his proposal of deferred implementation of its award to Central government employees and pensioners. Edited Excerpts:

Should there be a further pause on fiscal consolidation?

Absolutely not. For three reasons: First the FRBM [Fiscal Responsibility and Budget Management] target has been relaxed far too many times in India’s recent history. . Second, the ostensible reason for reducing the FRBM target, mainly to increase public investment, does not hold. Over 70% of the fiscal deficit is devoted to borrowing for consumption in the form of the revenue deficit. If you want to raise investment, you should do so by borrowing less to consume Three, even if the government wants to implement the [Seventh] Pay Commission award and modestly increase public investment, there is a pathway to do so, which I can see and so presumably can the Ministry of Finance.

What is this pathway for implementing the Seventh Pay Commission award to Central government employees and pensioners?

The Pay Commission award would result in a net impact on the Government of India Budget of approximately 0.5 % of GDP because the nominal GDP is lower this year than I calculated in the Pay Commission report. It is possible to contemplate implementing the basic pay plus DA [dearness allowance] merger in the current year and deferring implementing any real increases in pay and pensions to the future. This could be done by compensating those who would have to bear the burden of the deference by giving them a more generous award distributed over several years. I think what they should get, from April 1, 2016, is what they would get if we merge the basic pay and the DA, which is more or less what they are already getting. That will mean some increase in allowances but other than House Rent Allowance [HRA] the burden of that [on the government budget] will not be very high. The second thing we can do is defer allowances, principally the HRA. The case for that is strong because we are in the midst of fairly flat growth in consumption expenditure and rents are not going up much. The third thing we could do is to contemplate raising the service tax. Of course, the revenue generated will have to be shared with the States but when the GST [Goods & Services tax] comes in, the service tax rate will any way be approximately be 18%. Today it is 14%. So, a 2 percentage point increase in service tax is also a feasible option.

Could you explain your Pay Commission award implementation pathway proposal with an example?

My salary is Rs. 80,000 per month (basic) and with DA it comes to approximately Rs. 1,70,000. With the implementation of the Pay Commission award, that would go up to Rs. 2,30,000 a month. I am saying that the increment of Rs. 60,000 a month need not all be given at one go. It can be staggered and made more generous. So this could be done for pay and for pension. Now I am not competent to say whether this is politically feasible or not. But certainly it is an option.

Read more at: The Hindu