'Pay panel outgo, if funded by tax receipts, is bad economics'

Industry chamber Assocham voiced concern on Sunday over the 7th Pay Commission recommendations, saying it would be bad economics to pay higher salaries to government employees and pensioners by depending merely on tax receipts and revenue from disinvestment.

"Taking into account the budget for the fiscal 2015-16, the Centre's net share of the entire tax revenue is Rs.9.20 lakh crore and if the Pay Commission report is implemented as it is, the salary bill of 47 lakh employees and 52 lakh pensioners would shoot up to an alarming figure of Rs.5.27 lakh crore, increasing by Rs. 1.02 lakh crore per annum," the Associated Chambers of Commerce and Industry of India said in a statement here.

"We cannot depend on disinvestment or selling the family silver in bluechip PSUs just to pay salaries. This is certainly not a good economic policy," it added.

"No financial structure can be sustainable if much more than half of the revenue is claimed by the wages and salaries. Let us not create a situation where we go on borrowing endlessly to pay for salaries and wages," Assocham secretary general D.S. Rawat said.

"Secondly, how can the salary bill be reckoned from the total tax receipts when some part of it goes to states? The Centre has to pay its employees from its own revenue pool," he added.

While not disputing the finance ministry's assertion that the extra financial burden would not lead to increase in the fiscal deficit, Assocham said: "The question remains then, how are the government finances going to be fixed?"

Finance Minister Arun Jaitley, in Budget 2015-16, extended the target deadline for controlling fiscal deficit to three percent, reasoning that insistence on a timetable to contain the deficit would harm growth prospects.

The targets for the next three years have been set at 3.9 percent for 2015-16, 3.5 percent for 2016-17, and 3.0 percent for 2017-18.

Given the current state of the global economy and demand slowdown, it is uncertain that the economy would take a turn for a huge improvement in the next four months to coincide with the implementation of the Pay Commission report, Assocham said.

The 7th Pay Commission recommendations are to come into effect from January 1, 2016.