Rs 12,561 crore hit for the Exchequer in very first year

The Exchequer would take a hit of Rs 12,561 crore in 2008-09 if the government decides to implement the Sixth Pay Commission Report next fiscal, besides Rs 18,060 crore as one-time expenditure on paying arrears from January 1, 2006. However, the government can segregate the arrears payment in two parts, in which case it would have to pay Rs 9,030 crore in each installment. On the other hand, various other recommendations of the B N Srikrishna commission such as revised scheme of pension commutation and movement of defence personnel in para-military forces would save the Centre’s kitty a sum of Rs 4,586 crore. As such, the net effect on the exchequer would be Rs 7,975 crore, but the savings may not accrue in the first year. The Cabinet is yet to accept the recommendations.

Hypothetically, if the Cabinet decides to implement the report in toto from 2008-09, no savings may accrue to the Exchequer. In that case, the Centre may have to bear additional expenditure of Rs 12,561 crore the next fiscal. Out of this, Rs 9,242 crore will be borne through the General Budget and Rs 3,319 crore through the Railway Budget. Railway Minister Lalu Prasad, in his latest budget, has kept aside Rs 5,000 for the purpose. Of the total arrears payment, Rs 12,642 crore will have to be borne in the Centre’s Budget and Rs 5,418 crore in the Railway Budget. If arrears are paid in two stages, Rs 6,321 crore would be in the Central Budget, while Rs 2,709 crore in the Railway Budget for each installment.

Including the expenditure on payment of arrears, the additional expenditure for the year 2008-09 for the government, excluding Railways which has a separate budget, will be Rs 15,563 crore in case arrears are paid over a period of two years. The remaining expenditure of Rs 6,028 crore would be borne by the Railways in their budget.

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Break-up wise, the Centre would have to take an additional burden of Rs 3,828 crore if it decides to implement the commission’s suggestions on revised pay scales for civilians, Rs 1,640 crore for defence forces, Rs 1,497 crore for military service pay, a special monthly package recommended for the defence forces. It would take a hit of Rs 241 crore on account of the commission’s suggestions for transport allowances, Rs 1,100 crore for house rent allowance, Rs 1,365 crore for pension, Rs 410 crore for gratuity, Rs 180 crore for leave encashment and Rs 1,750 crore for defence forces allowances.

Though financing of the proposals would be clear once implementation is approved, finance minister P Chidambaram has kept for himself enough elbow room to fund them, analysts said. The Budget for 2008-09 has kept the target of fiscal deficit at 2.5 per cent of GDP, 0.5 percentage point less than the fiscal consolidation target for the next fiscal. This alone may give the government over Rs 27,000 crore, analysts said.