7th Pay Commission: Wage payout of Rs 56K cr not to upset Apr-Aug fiscal math

New Delhi: The Rs 56,000 crore payout last month for wage arrears to government employees will not upset the fiscal deficit numbers for the April-August period of the current financial year as plan expenditure will shrink during monsoon, Finance Secretary Ashok Lavasa said Wednesday.

The government had in July announced that it will pay its employees arrears arising out of implementation of the 7th Pay Commission award at one go in August salary.

"Rs 84,000 crore is the liability of 14 months. The bill of Pay Commission recommendations is Rs 7,000 (crore) per month including arrears," Lavasa told PTI.

A Rs 7,000 crore per month outgo towards Pay Commission would translate to Rs 56,000 crore for January-August period.

The government has notified a 2.57-time hike in basic salary for 1 crore government employees and pensioners as per the 7th Pay Commission recommendations. The pay hike has been made effective January 1, 2016.

Asked if the higher one-time outgo on account of arrears would lead to sudden spurt in fiscal deficit, which has already touched 73 percent of Budget Estimated in April-July, Lavasa said it would depend on the plan spending.

"There may be some increase in expenditure because of the payment of arrears, but you will have to see how much is the income. Then you can determine. It would also depend on other spending that takes place. During July, August, September because of rains there is some slowdown in expenditure," he said.

The fiscal deficit, which is the gap between expenditure and revenue for the entire fiscal, has touched 73 percent of Budget estimates at the end of July. For full 2016-17 fiscal, fiscal deficit is targeted at Rs 5.33 lakh crore or 3.5 percent of GDP.

Lavasa said the fiscal situation on the whole is showing improvement compared to last financial year.

"If you look at the revenue receipts, they are showing good bouyancy. So compared to last year, the gross revenue receipts have gone up from Rs 2.15 lakh crore to Rs 2.63 lakh crore that is an increase of Rs 48,000 crore," he said.

Tax revenues have already touched 21 percent of budget estimates, compared to 16.7 percent last year.

"Non-tax revenues, yes (there is lag) as we had some spectrum user charges last year during first quarter. On the whole, situation is better than last year," Lavasa said.

Continuation of fiscal consolidation is key to protecting India's credit rating.

Finance Minister Arun Jaitley plans to narrow fiscal deficit or shortfall in revenue over expenditure, to 3.5 percent of gross domestic product (GDP) in the fiscal year that began on April 1. This will be the smallest deficit since 2008 and compares to 3.9 percent shortfall in the previous financial year.

In April, the government approved a proposal to cap states' budget deficits in a bid to shrink the shortfall.

State governments will have to limit the gap to 3 percent of their gross domestic product in a financial year. They can exceed the target by 0.5 percentage point if they keep interest payments and the debt-GDP ratio within specified limits.