New Delhi: Nearly five million Indian government workers are set to get higher wages as the cabinet is expected to approve recommendations of a pay panel on Thursday, officials and newspapers said.
The pay panel, known as the Sixth Pay Commission, made its recommendations earlier this year for salary increases for central government workers costing $2.9 billion for the fiscal year 2008/09, plus Rs180.60 billion in backpay to January 2006.
The cabinet set up a team of top civil servants to examine the recommendations and newspapers and officials said proposals were likely to go before the cabinet on Thursday, although some said they may not be announced until the prime minister makes a speech on the Independence Day national holiday on Friday.
“Yes it could be taken up in the cabinet,” a government official told Reuters, but declined to give any details.
The Indian Express newspaper said also the pay proposals for civil servants and the armed forces were likely to go before cabinet on Thursday and it could announce a 20 % increase over what the panel had recommended.
Analysts say the wage increases could derail India’s moves to tidy up its public finances and widen the federal fiscal deficit, which the government aims to limit to 2.5 % of gross domestic product (GDP) in 2008/09, down from 3.1% in 2007/08.
They say the total fiscal cost could be anywhere between Rs250-300 billion for this fiscal year that started 1 April , if it is taken as a benchmark for pay awards for state and quasi-government employees across the country.
Another government panel said on Wednesday the budget deficit target for 2008/09 would be exceeded and serious fiscal risks were arising from growing off-budget liabilities estimated at 5% of GDP.
The pay round comes roughly once a decade and the previous one in 1997 raised salaries for federal employees by nearly 40%, prompting many state governments to follow suit and blowing the combined state and federal deficit to nearly 10% of GDP.
India is battling inflation of 12% but economists said the pay round was unlikely to give prices a significant boost.
“The impact on inflation will be negligible but the bigger impact will be on the fiscal situation,” said D.K. Joshi, principal economist at ratings agency Crisil in Mumbai.
While inflation has surged, economic growth is expected to cool this year as a result of higher interest rates and Joshi said the pay hike could provide a temporary boost to flagging demand for consumer durables.
More importantly, he said, state governments were likely to want to boost their employees’ wages, with state elections scheduled later in the year and federal polls in early 2009.