7th CPC Recommendations May Strain State Governments’ Finances: Niti Aayog

7th CPC Recommendations May Strain State Governments’ Finances: Niti Aayog

Government employees may be busy celebrating 7th Pay commission, but it seems like Niti Aayog isn’t feeling good about it. Speaking on 900-page report submitted by the commission to government, a Niti Aayog member named Bibek Debroy recently said that panel’s recommendations may seriously strain government finances.

He said that once implemented, recommendations made by the panel may make it nearly impossible for states to hold a hike in the salaries of their employees. This situation, in turn, may strain the finances of almost all state governments. Currently state governments do one thing when they find their finances straining – they splash capital expenditure and development spending. By following this methodology, over the years finances of states have improved and currently they’re better off in comparison to Central government. However, once recommendations suggested by 7th Pay commission are implemented, they may make it almost impossible to control capital expenditure as employees of state governments will also start demanding a hike in their salaries.

As you may remember, 7th CPC has suggested an overall 23.55% hike in salaries of Central government employees, which includes around 16% hike in base salary and remaining in various allowances. It has also suggested implementing OROP for civil servants as well. All of these things are expected to involve a financial outgo to the tune of Rs. 1.02 lakh crore per annum, which is 0.6% of India’s GDP. Out of this Rs. 73,650 crores will be borne by general budget and Rs. 28,450 crore by railway budget. If accepted, these recommendations will be effective from January 1, 2016.

However, Debroy made it clear that he’s not supporting the point of analysts who’re saying that panel’s recommendations may challenge the “fiscal consolidation” drive of Central government. Referencing those statements as “overstated” and “misleading,” he said that news reports that make such statements only consider the hike in base pay to conclude things and do not consider the dearness allowance of employees, which has’t increased much. In short, he made it clear that despite slim chances he’s optimistic about government reaching its target of 3.9% fiscal deficit by the end of this financial year. However, the fiscal deficit scene for next fiscal (2016 – 2017) would’ve been much better if 7th CPC would not have recommended these hikes, he said.

In case you don’t know, a whole lot of financial analysts have raised concerns regarding financial impact of recommendations suggested by 7th CPC.

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