The implementation of the Sixth Pay Commission report for central government employees will cost the exchequer Rs 26,035 crore. This includes Rs 18,060 crore on payment of arrears.
The commission has submitted the report recommending for a retrospective implementation from January 1, 2006. According to the report, the recommendation will cost Rs 12,561 crore in the 2008-09 fiscal year. But, its implementation will also lead to a saving of nearly Rs 4,586 crore on account of various measures suggested by the commission. Therefore, the net financial implication of the recommendation contained in the report will be Rs 7,975 crore in 2008-09.
After the implementation, the total payout on account of salary and allowances of the central government will increase from the estimated Rs 27,897.30 crore to around Rs 54,000 crore in 2008-09, along with the arrears.
A senior economist says impact of the implementation of the recommendation will be on expected lines. It is likely to increase the fiscal deficit by around 0.5 percentage point to 3 per cent of the GDP from 2.5% of GDP estimated in the Budget.
But, on popular demand, even the state governments are likely to implement the same pay scale putting pressure on their fiscal condition as well. A senior economist said that the total fiscal deficit of the central and state governments is bound to rise by over one percentage point after the sixth pay commissions implementation. Payment of arrears will also lead to increase in the direct tax collections, on the flip side. But, as the government has introduced the new tax system, the total tax liability will be substantially low.
On the whole, delay in announcement of the pay commission report and a further delay in payment of arrears will help the government babus.
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