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Centre: OROP, pay panel won't hit fiscal math

BS Reporter 

Jayant Sinha
Jayant Sinha

Implementation of One Rank, One Pension and increase in salary due to the 7th Pay Commission won't impact the Centre's fiscal maths, minister of state for finance Jayant Sinha said after a brainstorming session between more than 10 eminent economists and the government.

The meeting also deliberated on India's agriculture scenario, the importance of raising productivity and on the need for banking and financial sector reforms. The brainstorming, which was held ahead of the 2015-16 Union Budget, was facilitated by the National Institution for Transforming India (NITI) Aayog.

OROP is likely to result in an outgo of Rs 8,000-10,000 crore this financial year. The 7th Pay Commission report in December is expected to recommend a rise in salary of central government employees.

Though it is early to speculate on the exact impact of the commission's report, a statement tabled by finance minister Arun Jaitley in Parliament had said the Centre's salarly bill will rise by 9.6 per cent to Rs 1,00,619 crore with implementation of the recommendations.

The rise will be 15.8 per cent to reach Rs 1.16 lakh crore in the next financial year, according to the Medium-Term Expenditure Framework Statement tabled by him.

“We are in a very good shape as far as fiscal management is concerned. That was appreciated by all economists,” Jayant Sinha said. He made it clear the government’s fiscal position was strong enough to bear the impact of OROP and implementation of the 7th Pay Commission.

The government has deferred a fiscal roadmap laid by the previous government by a year and committed to reduce the deficit at 3.9 per cent of GDP for the current financial year against 3.6 per cent planned earlier.

The finance ministry has already said it expected the overall tax collections this financial to fall 5-7 per cent short of the Budget Estimate, largely due to less-than-projected direct tax collections. This is despite the excise duty on petroleum products raised, sops to the auto and capital goods sector being rolled back and service tax increased from June, leading to 36 per cent rise in indirect tax collections during the first half of the current financial year.

While the need to up investment cycle by raising capital expenditure and pressures of OROP and the pay commission's recommendations would increase expenditure, subdued global crude and other commodities prices would help the government rein in subsidies.

At the start of the discussion, NITI Aayog, vice chairman Arvind Panagariya, outlined the steps already taken and those underway by the Center and states to improve investment climate in the country.

"The emphasis mainly was on the measures to improve the Ease of Doing Business, opening up of the economy, the FDI in insurance and defence, auctions in coal and mineral mines, skill development, infrastructure, labour market reforms and modern bankruptcy law," an official statement released later said.The focus on agriculture comes at a time when the country is reeling under the impact of the second consecutive year of drought in some parts and falling commodity prices.

“There were four major points of discussion: agriculture, fiscal expenditure, financial sector reforms and how to create more jobs in manufacturing sector and services,” Sinha said.

“It was mainly a brainstorming meeting, broadly focused on the current state of the economy. Importantly, this has happened well before the time pre-Budget consultations usually happen. A lot of ideas were discussed related to the Budget, economy, the challenges and the priorities for the government,” said an economist, who participated in the meeting but did not wish to be named.

“We had some of India’s most eminent economists and commentators there. Obviously, it is very early in the cycle to start the consultation. But we felt if there were good ideas, we could incorporate them even in this financial year. Obviously, for the preparation of the current Budget, we could begin the work on that right now,” Sinha said.

“It was very good interaction and we look forward to incorporating much of this for this financial year as well as the coming fiscal.”

There were several topics that came up, he said, adding, “One very important topic that we spent time on is agriculture and what we could do to increase productivity in agriculture.”


The meeting also dwelt at length on fiscal expenditure and how to ensure fiscal expenditure, particularly public investment, could be as productive as possible.

“The third major area that we spoke about is obviously the financial sector... more credit for agriculture, MSMEs and what could we do further to strengthen our banks. The final area we spent time on is how to ensure we are able to create more jobs for young people, whether it is in the manufacturing sector or the service sector,” he said.

Apart from Panagariya, Chief Economic Advisor Arvind Subramanian and RBI Deputy Governor Urjit Patel, Finance Secretary Ratan P Watal, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Hasmukh Adhia and Financial Services Secretary Anjuly Chib Duggal were present in the meeting.

Economists and academicians including Subir Gokarn, director of research at the Brookings Institution India; Ajit Ranade, chief economist, Aditya Birla Group; and Rajiv Lall, vice-chairman, IDFC Ltd, along with Sajjid Chinoy, Vallabh Bhansali, Neelkanth Mishra, Bakul Dholakia and Tushar Poddar also participated in the meeting.

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First Published: Tue, October 20 2015. 00:40 IST
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