Pay commission recommendations aren’t inflationary. But the fiscal deficit targets may prove unrealistic.
The Seventh Central Pay Commission has recommended an overall increase of Rs 1.02 lakh crore at a growth rate of 23.55 per cent in pay, allowances, and pension (PAP) for Central government employees. More specifically, the increase is 16 per cent in pay, 63 per cent in allowances and 24 per cent in pensions. This, as per the commission’s calculations, will lead to an increase in the salary bill by about 0.65 per cent of GDP. First, there should be two corrections. One, the increase in the salary bill should be 0.63 per cent of GDP. Two, the increase in the estimated share of the PAP in total revenue expenditure should be 3.81 per cent, as against 4.25 per cent suggested in the commission’s report. These recommendations will benefit about 1.4 crore government employees with effect from January 2016 and are expected to have a significant impact on the overall macroeconomic parameters, such as the GDP, fiscal deficit, as well as inflation.