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Wednesday, January 25, 2017

7th Pay Commission: With an eye on elections, will the Union Budget woo government employees

Ahead of the Assembly elections in five states, the BJP-led government at the Centre has been directed to not announce any schemes in the Union Budget which can influence voters in the poll-bound states.

The Election Commission said the direction to the Central government is in the interest of free and fair elections and to maintain a 'level playing field during elections'.

With the model code of conduct in place, the government could be looking at making a pan-India announcement in its Union Budget that will have an impact on everyone, including the five states going to elections from February 4.


An announcement on the Seventh Pay Commission's recommendations on allowances cannot be ruled out. The Seventh Pay Commission proposed a 138.71 per cent hike in housing allowance (HRA) and 49.79 per cent for other allowances, while junking 53 of the 196 allowances and suggesting moderation in several others.

The commission's recommendations will benefit 47 lakh Central government employees and 53 lakh pensioners.

After the pain of demonetisation and a long wait for pay increase, a hike in allowances for employees in the Union Budget can win the Narendra Modi government a huge applause ahead of the Assembly elections in Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa.


On the financial front, the Pay Commission estimated that during the current fiscal a hike in allowances would add a burden of 29,300 crore (Rs 17,200 crore under HRA and Rs 12,100 crore under other allowances) on the government.

The Narendra Modi government has recorded impressive figures for tax collection in the first half of the fiscal. The total direct and indirect tax collections at the end of August last year stood at Rs 5.25 lakh crore.

Further, the government is eyeing a 12.64 per cent growth from direct tax to Rs 8.47 lakh crore in the current fiscal, and 10.8 per cent growth to Rs 7.79 lakh crore from indirect tax.

The Union Budget last year had already earmarked Rs 70,000 crore for the implementation of the Seventh Pay Commission. As per government estimates, the financial impact of implementing the pay commission recommendations in the 2016-17 fiscal is likely to be Rs 1.02 lakh crore.

According to a Bank of America Merrill Lynch (BofA-ML) report, the Modi government is likely to add Rs 1 lakh crore to its coffers in the form of additional taxes under the Income Disclosure Scheme II (IDS II). Under this scheme, black money hoarders have time till March to come clean by paying 50 per cent tax on deposits of old currency post demonetisation.

"This should allow Finance Minister Arun Jaitley to hold the FY18 fiscal deficit at 3.5 per cent of GDP--same as FY17's--and at the same time fund the 7th Pay Commission and recapitalise PSU banks, without cutting back on public capex," the BofA-ML report said.
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