India allocates 700bn rupees for civil servants’ salary hike in 2016 budget

By on 29/03/2016

The Indian government has allocated 700bn rupees (£7.4bn) for the salary hike of central government employees as part of the 2016 union budget. Up to 4.7m sitting civil servants and 5.2m pensioners are to be benefited by the rise.

The once-in-a-decade increment, which is likely to be implemented in the coming months, follows the recommendations made by Seventh Central Pay Commission – a makeshift state-appointed body which advises on salaries and administrative structures of government staff. The Commission, headed by a former Supreme Court judge, also put forward that the minimum salary for a government employee should be fixed at 18,000 rupees (£190) per month.

The overall impact of the hike on the exchequer is yet to be accurately ascertained by the finance ministry.

Shaktikanta Das, the ministry’s economic affairs secretary, said: “We cannot really quantify how much we require in 2016-17. Because the Committee of Secretaries have to first give its recommendations, then government will take a decision and then only we will know what is the requirement for FY17.”

As per the Commission’s assessment, the hike will pinch the government 1tn rupees (£10.5bn) if the administration decides to fully implement its recommendations.

“We have provisioned for around 60-70 per cent of the total burden that was talked about,” a finance ministry official told Press Trust of India without elaborating.

For the civil servants, the overall increase – which includes various allowances – in his/her wages will be 23.5%, which will come into effect on 1 January 2016.

Central government pensioner Sridharan, who uses only a single name, said: “The previous hike in 2006 was about 40% and that was a significant rise. This year, I’m expecting, at least, a 20% growth in my pension.”

As part of the latest hike, the Modi administration also announced a 6% increase in the dearness allowance (DA) – a key ingredient of the salary which is annually raised to neutralise the effects of inflation – on 23 March for the central government employees and pensioners. Union Minister Ravi Shankar Prasad told the parliament it was “a Holi gift”, referring to the Indian festival of colours. This will further burden the government coffers by 140bn rupees (£1.4bn). The populist budget was drafted by also keeping an eye on the upcoming elections in four major states in May 2016.

The payments will be made to the civilian employees not via the existing Grade Pay structure, which primarily considers the category of an employee, but by a newly designed pay matrix. The position of the employee will also be henceforth determined by this matrix.

The increased expenditure has raised concerns that it will have a direct bearing on the Indian economy, which has grown from $1.3tn in 2007 to $2.1tn in 2015, as its fiscal impact is looming large.

Finance Minister Arun Jaitley has also admitted: “The next financial year 2016-17 will cast an additional burden on account of the recommendations of the Seventh Central Pay Commission.” He, nonetheless, expressed confidence the country will meet its 3.9% fiscal deficit target for 2016-17.

 

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About Vasudevan Sridharan

This article was written by Vasudevan Sridharan. Global Government Forum works with a network of contributors who are experts in their field. If you would like to contribute a piece to Global Government Forum, please contact editorial@globalgovernmentforum.com

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