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| Bear cost of pay revision: States to Centre |
| BS Reporter / New Delhi Jun 12, 2009, 00:31 IST |
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State governments, in a unanimous decision, have asked the Centre to bear 50 per cent of the cost from implementing Sixth Pay Commission recommendations in the backdrop of the economic slowdown, which has depressed revenue collections.
In addition, the states also sought relaxation of fiscal deficit targets by another 2 per cent of their Gross State Domestic Product (GSDP) for at least two financial years, from the current level of 3.5 per cent of GSDP. If implemented, this would mean additional borrowing of nearly Rs 1,20,000 crore over the next nine months of fiscal 2009-10.
“There was a consensus among states that 50 per cent of the expenses arising out of implementation of the Sixth Pay Commission should be borne by the Centre,” said Assam Chief Minister Tarun Gogoi, after emerging from the first ever pre-Budget meeting between states and the Union finance ministry.
Chief Ministers Prem Dhumal (Himachal Pradesh), Digambar Kamat (Goa) and Finance Minister of Chhattisgarh Amar Agarwal also toed the same line after the meeting. “States are facing difficulty in revenue generation. The Centre should bear the cost of the Sixth Pay Commission to help us,” Kamat added.
Though Sixth Pay Commission is applicable only for central government employees, many states benchmark their pay revision based on central pay commission.
The Sixth Pay Commission recommendations were accepted by the Union Cabinet on August 14. The recommendations lead to an average increase of 21 per cent in salaries of 5 million government central government employees. The central exchequer’s annual cost went up by Rs 17,798 crore because of the new wage structure. Moreover, the recommendations also cost the government Rs 29,373 crore on account of arrears from January 2006 and August 2008.
On his part, Finance Minister Pranab Mukherjee today called for deliberations on means to bring back the Indian economy to higher growth trajectory without “fiscal profligacy”.
“I am happy to inform this august gathering that the request of the states for elimination of double counting of revenue benefits to the states for both the VAT and CST compensation packages, has been accepted by me and the related circulars have also been issued,” Mukherjee told the state government representatives.
The states also asked for relaxation of the fiscal deficit ceiling set for availing debt consolidation and relief facility.
States are allowed to borrow an additional 0.5 per cent of GSDP in fiscal 2009-10. Under Debt Consolidation and Relief Facility (DCRF), states are permitted fiscal deficit of 3 per cent of GSDP. The relaxation would allow additional borrowings of Rs 30,000 crore.
“States demanded to borrow more by 2 per cent but nothing is decided,” said Asim Dasgupta, West Bengal finance minister and chairman of the Empowered Committee of State Finance Ministers. “Issues were raised relating to FRBM because in handling recession increased public expenditure by Centre and states,” he added.
Significantly, Andhra Pradesh today urged Mukherjee to link the DCRF guidelines to a states ability to generate revenue, and not to GSDP.
“Linking it up with GSDP and not to the level of revenues, may not serve the intended purpose, as not all the states have the same revenues to GSDP ratio. The Central government may kindly consider modifying this formula by linking the loan eligibility to revenue receipts rather than GSDP. This may help states with better debt service coverage ratio to raise more loans for building capital assets which is the need of the hour,” an Andhra Pradesh government submission to the finance ministry said.
The state also demanded that funds for all centrally sponsored schemes should be directed through the state government, and not directly to the beneficiaries.
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