7th Pay Commission Implementation from September 2016
Central Government would pay the revised allowances only prospectively
The Centre is to implement the 7th Pay Commission award from September-October, to give a consumption boost to the economy. However, it would pay the revised allowances only prospectively, in order to restrict the budgetary outgo, unlike the pay component will be paid along with arrears from January 2016.
Allowances currently are roughly half of the Centre’s salary bill; as per the pay panel award, the steepest increase — 63% — was in allowances, while the overall rise recommended was 23.55% in pay, allowances and pensions.
If the revised allowances take effect only from September 2016, the savings to the exchequer would be Rs 11,000 crore, official sources told FE. Additionally, the national transporter will save around Rs 3,800 crore, if the railway ministry decided to toe the Centre’s line. An overall rise in pay, allowances and pension (PAP) and also to finance the one-rank-one-pension scheme for the armed forces due to the Budget which had provided Rs 53,500 crore towards the pay panel. Due to its award at Rs 73,650 crore the commission had estimated the additional outgo in FY17 .
Due to the Centre’s additional bill on allowances in FY17, the pay panel would be about Rs 22,000 crore, but since it would release 7th Pay Commission only from September, the actual outgo would be nearly half that.
Some analysts reckon that the consumption stimulus to the economy from the increased pay to government staff this time around could be somewhat muted.
Compared with the Sixth Pay Commission award — which led to an overall salary increase of 40% and was released first with arrears of 30 months paid over two years — the disbursement now includes only six months’ arrears in pay, they noted. “If the pay commission’s award is implemented across the board , it would bring in an additional 0.9% of GDP growth in FY17,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy. Even if states lag in implementing the pay revisions, Bhanumurthy said, GDP growth still could be at least 8% in the current fiscal, up from likely 7.6% last year.
Contrary to some reports that government employees could be asked to put part of the increased salary in bank capitalisation bonds to be issued by the Centre to infuse capital in the banks, officials said there was no such move. The government would like the employees to spend additional money in their hands to perk up the economy, sources added.
The 7th pay commission panel had projected the railways budget would bear the additional Rs 28,450 crore in FY17 due to its award. However, officials reckon that the actual requirement could be lower by about Rs 3,800 crore for the railways due to prospective implementation of allowances.
Source: Financial Express