New Delhi: In a move that will cost Rs42,762 crore and widen its fiscal deficit, the Union government on Thursday rewarded the five million people it employs with an average salary raise of 21%, going beyond the recommendations of the Sixth Pay Commission. ( See: Graphic )
The cabinet also backdated the pay revision to 1 January, 2006. Central government employees and Armed Forces personnel would get 40% of the salary arrears this fiscal and the rest in FY10. Employees will receive higher salaries with their next pay cheque.
The emoluments of an employee at the lowest level in Union government services would be Rs10,000 per month.
Finance minister P. Chidambaram said the impact of the revised pay scales on inflation, which has surged to a 16-year high, has been taken into account. “Both the Union and railway budgets have a capacity to bear the burden on account of the implementation of revised pay scale for Central government employees,” he said after a cabinet meeting.
The burden on the Union budget and the railway budget will be Rs15,717 crore and Rs6,414 crore, respectively, for 2008-09, Chidambaram said. Including arrears, the total burden would amount to Rs42,762 crore, more than the Rs30,621 crore the pay panel’s recommendations would have entailed.
The cabinet overlooked the pay panel’s recommendations that called for linking the pay hikes to changes aimed at boosting productivity in the notoriously inefficient bureaucracy. It rejected proposals to limit full government holidays to three in a year, a liberal severance package for employees who have served between 15 and 20 years and flexible working hours for woman employees and those with disabilities.
The spending will cause the fiscal deficit to swell. While the finance minister had estimated the deficit at 2.5% of gross domestic product (GDP), the prime minister’s economic advisory council, after taking into account the off-budget liabilities and the pay panel recommendations, had projected a deficit of 7.5%.
“The government may reduce allocation for various social sector schemes in its effort to try and maintain the deficit level at 2.5% as mentioned in the budget,” said M. Govinda Rao, director of the National Institute of Public Finance and Policy.
“However, it does not change the overall situation. As already pointed out in the Economic Advisory Council Economic Outlook, the off-budget liabilities could amount to 5% of GDP in the current year over and above the budgeted fiscal deficit.” Mint had reported on 2 July that the government would pay close to Rs12,000 crore beyond the recommendations of the Sixth Pay Commission. The additional payout was recommended by a committee of secretaries tasked with finetuning the pay commission report after holding discussions with employee unions.
Arun Jaitley, a senior Bharatiya Janata Party, or BJP, leader said the approval of the pay commission recommendations had come too late, especially against the backdrop of inflation, which soared to 12.44% for the week to 2 August. Asked at a press conference if he thought the government had delayed the announcement to a date as close as possible to general election due by May 2009, he replied, “That may have been the government’s objective. But politically, too, it is too late.”
Madhusudan Devram Mistry, a Lok Sabha member of the Congress party and a member of the parliamentary standing committee on finance, said the announcement was a “pleasant surprise”.
“Even government employees didn’t expect a decision before Diwali,” he said. “To me, the biggest thing is that the Prime Minister overruled Chidambaram and ensured that the effective date would be 1 January 2006, instead of 2007, and that no sum would be required to be parked in the employees’ provident fund as suggested by him.”
At least three promotions have been assured for all defence forces’ personnel and civilian employees under the modified Assured Career Progression scheme. While the civilians would get promoted after 10, 20 and 30 years of service, the defence forces’ personnel would get elevated in 8, 16 and 24 years.
In another decision, the cabinet committee on economic affairs approved modernization of Chennai airport at an estimated cost of Rs1,808 crore. It also approved a new credit-linked subsidy programme called the Prime Minister’s Employment Generation Programme by merging the Prime Minister’s Rojgar Yojana and Rural Employment Generation Programme.
Ashish Sharma and Asit Ranjan Mishra contributed to this story.