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Centre's wage bill will claim 57% of net tax revenue: Assocham

23 November 2015

D.S. RawatThe salary bill of central government employees and pensions will together claim about Rs5,27,000 crore, which is 57 per cent of the centre's net tax revenue share of Rs9,20,000 crore for fiscal 2015-16, if the recommendations of the Seventh Pay Commission are fully implemented, industry body Assocham has said.

The salary bill of 4.7 million employees and 5.2 million pensioners would shoot up to an alarming figure of Rs5,27,000 crore, increasing by Rs1,02,000 crore per annum, taking the public finances to a precarious state of affairs, Assocham has warned

''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.

While the chamber has no reason to disbelieve the finance ministry assertion that the extra burden of Rs1,02,000 crore would not lead to increase in the fiscal deficit threshold of 3.9 per cent in FY 2016 and 3.5 per cent in 2017, the chamber said the question on how the government finances are going to be fixed, remains unanswered.

''Given the state of the global economy and demand slow-down, it cannot be stated with confidence 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'', the analysis noted with concern.

It would be wrong to reckon the salary bill either from the total budget/total revenue receipts or revenue expenditure. ''We cannot be depending on disinvestment or selling the family silver in bluechip PSUs just to pay salaries. This is certainly not a good economic policy. Secondly, how can the salary bill be reckoned from the total tax receipts when some part of it (Rs5,23,000 crore) goes to the states. The centre has to pay its employees from its own revenue pool''.

Under tight fiscal situation where there is a pressure of meeting competing demands of meeting the development expenditure and the fiscal deficit target, the huge increase in the wage bill will make the investment scenario worse.

''In any case, the economic revival is contingent upon the investment which should be spear headed by the public finance given the fact that the private sector is reeling under a heavy leverage.  Which magic wand then the government would use to ensure that it generates extra resources to boost investment when its own balance sheet would have a larger claim from its employees and pensions'', the Assocham asked.

Besides, barring not more than 100 top corporates, for a large majority of the private sector, both organised, unorganised, large and small, this kind of matching wage scale is not feasible. On the other hand, there would be increased wage pressure once the government employees start drawing new salaries.

''Which private firm can afford a driver at Rs30,000 a month and an entry level peon at Rs22,000-25,000 a month (salary plus allowances), barring the top 100….'', the Assocham paper noted with concern

''This way, we are in a for a wage spiral….which will be aggravated by the revision which will follow in the state governments and those working in public sector units….''

''We cannot build islands of prosperity and this is certainly not the way forward for removing inequalities in the system. The fact is that majority of the private sector is not able to pay salaries anywhere matching the government sector. Besides, the increased purchasing power among the privileged one crore people may generate pockets of short-lived demand for automobile, consumer durables and non-durables etc,  but overall this kind of extra money would lead to an inflation spiral taking the country again to high interest rate scenario,'' Rawat said.

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