Sixth pay panel report faces Cabinet test today

The new pay scales, if implemented, will cost the exchequer Rs 7,975 crore in fiscal 2008-09.

The report of the Sixth Pay Commission is likely to be put up for approval of the Cabinet tomorrow, a senior Union minister told Business Standard here today.

Prime Minister Manmohan Singh may announce the award during his Independence Day speech on August 15, he added.

The nitty-gritty of implementing the report was part of the agenda of high-level discussions held at the Prime Minister’s Office today. “There were certain anomalies and issues.

They have been cleared today. Most probably the announcement will be made on the Independence Day,” said the minister. One of the key demands of the armed forces for higher military service pay has been met, say sources.

The Sixth Pay Commission has recommended an effective 28 per cent salary hike for an estimated 4.5 million central government employees. The report of the commission, headed by Justice BN Srikrishna, was submitted to the government on March 24, nearly a fortnight before its 18-month tenure was to end.

The new pay scales, if implemented, will cost the exchequer Rs 7,975 crore in fiscal 2008-09. However, the one-time additional outgo on account of the retrospective revision of salaries is estimated to be Rs 18,060 crore. The arrears are to be given in instalments. The fiscal impact of the award will lessen if the payment of arrears is deferred by a year.

While it is unconfirmed yet, sources suggest that the finance ministry is keen that the fiscal impact of the award be spread over a period of time. The pay panel had originally recommended implementing the revised pay scales from January 1, 2006.

Sources added there was a proposal to put a moratorium on withdrawal of the arrears, which would be credited to the employees’ general provident fund accounts. However, a final decision on this is not yet known.

In Budget 2008-09, the finance ministry had estimated that the fiscal deficit would be 2.5 per cent of GDP, in line with the Fiscal Responsibility and Budget Management Act, 2003. This included headroom for the likely impact of the Pay Commission award.

However, subsequent developments have led to the fear that the Centre’s fiscal position may have taken a beating during the year leading to an increase in the subsidy burden.on account of the farm loan relief package and higher crude oil prices Before the report was submitted, finance ministry officials had said the impact of the recommendations would be within 0.4 per cent of GDP in 2008-09.

Other experts have said the impact will not exceed 0.5 per cent of GDP, unlike the previous fifth Pay Commission award, whose impact on the Centre’s fiscal position was much higher.