7th Pay Commission – How Govt will Save Rs 11,000 Crore – Allowances currently are roughly half of the Centre’s salary bill.

The Centre is likely to implement the 7th Pay Commission award from September-October, the beginning of the festive season, to give a consumption boost to the economy. However, in order to restrict the budgetary outgo, it would pay the revised allowances only prospectively, unlike the pay component that 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 in pay, allowances and pensions recommended was 23.55%.

If the revised allowances take effect only from September this year, the savings to the govt would be to the tune of Rs.11,000 crore, official sources said. Additionally, if the railway ministry decided to toe the Centre’s line, the national transporter will save around Rs.3,800 crore. The Budget in February had provided Rs.53,500 crore towards the pay panel-induced overall rise in pay, allowances and pension (PAP) and also to finance the one-rank-one-pension scheme for the armed forces. The 7th Pay commission had estimated the additional outgo in FY17 due to its award at Rs.73,650 crore.

The Centre’s additional bill on allowances in FY 17 due to the pay panel would have been about Rs.22,000 crore, but since it would release allowances only from September (and not with retrospective effect from January as envisaged by the commission), 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 (including state governments as well as public institutions/enterprises), 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.

7th Pay CommissionThe seventh pay 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 R3,800 crore for the railways due to prospective implementation of allowances.


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