: The Tamil Nadu government, which has been doing a tight rope walk over the past six years on the fiscal front, will come under further strain as and when it implements the recommendations of the Seventh Pay Commission for its employees.
In the wake of the Centre accepting the recommendations of the Seventh Pay Commission, the State government will soon constitute a panel to work out the pay structure for its employees and submit a report, say official sources.
“It could take three months or six months. It is a complicated process. There are a lot of variables like employee numbers and pay scales for various grades that have to be studied. The process itself takes time,” says a source in the Government.
In fact, the State government, in its interim budget for 2016-17, had projected the revenue deficit based on the assumptions that the Seventh Pay Commission recommendations would be implemented from 2017-18 fiscal onwards.
With a month to go for the State budget, officials are tight-lipped as any decision on its implementation has to be taken at the highest level. “Sometimes, schemes are included and allocations are made after the budget is presented,” points out an official.
One thing is certain though. The Fiscal Deficit–Gross State Domestic Product (FD-GSDP) ratio will breach the 3 per cent norm after the Seventh Pay Commission rollout.
“A [FD-GSDP] ratio of close to 3 per cent means that the economy is under constant strain,” says Prof. R. Srinivasan, Department of Econometrics, University of Madras,
In Tamil Nadu, the FD-GSDP ratio hit a high of 3.21 per cent in 2010-11 and has been hovering near the three per cent mark for the past six years. According to this year’s budget estimates, salaries and pensions account for 41.64 per cent of the total revenue expenditure. Considering the possible expenditure due to hikes in dearness allowance, increments and filling up of vacancies, a growth rate of 30 per cent is assumed for 2017-2018.
There is always a spike in expenditure when pay commissions are implemented. The payoffs will depend on the number of employees in each grade among other variables. Some States defer the process by some years but Tamil Nadu has had more or less concurred with the Centre and implemented it as early as possible. The impact will be high only in the first year and will come down subsequently, official sources said.
While the dip in revenue collection over the past five years is attributed to the global economic slowdown, allocation of additional funds for welfare schemes has also pushed the revenue expenditure. For instance, the State has announced free 100 units of power to all households from this year.
Debt-GSDP ratio
While the opposition parties have been accusing the government of excessive borrowing, the outstanding debt including provident fund is expected to be around Rs. 2.47 lakh crore by the end of this fiscal.
This will constitute only 19.62 per cent of the GSDP, against the accepted norm of 25 per cent.
Already, some States like Tamil Nadu which will breach the FD-GSDP ratio of 3 per cent norm but will still keep the debt-GSDP ratio within the permissible limit of 25 per cent have asked the Centre to relax the 3 per cent norm till their Debt-GSDP ratio gets close to 25 per cent. “This will allow the governments to go for more borrowings to balance the loss from the payouts,” an official said.
“There are many ways to manage the fiscal strain resulting from the payouts. For instance, the government can reduce expenditure. But unless the State is able to mobilise more resources, the fiscal strain will be a constant,” Mr. Srinivasan says.
According to budget estimates, salaries and pensions account for 41.64% of total revenue expenditure
