Early beginning OROP, Pay Commission expedite budget exercise

The finance ministry has advanced the time for prepa­ration of the Union budget for 2016-17 by over two months. The process will now begin this month instead of October. “In consonance with the objective of the government of India to have wider consultations with various stakeholders, as well as to provide more time for planners, it has been decided to start the budget exercise by middle of August 2015 for the forthcoming financial year 2016-17,” the finance ministry said, in a statement issued recently.

Though the finance ministry claimed it is advancing the process to the second quarter to plan the exer­cise better, official sources concede that the budget preparation is being advanced because the ministry is apprehensive about the recommen­dations of the Vllth Pay Commis­sion, which is likely to significantly increase the revenue expenditure of the government in the next fis­cal, leaving it less money to spend on building capital assets. The rec­ommendations of the Vllth Pay Commission, which was set up in February 2014, is likely to be imple­mented from 1 January next year.

According to the Medium-Term Expenditure Framework Statement, tabled in Parliament by finance min­ister Arun Jaitley, the salary outgo of the Central government employees

will go up by 9.56 per cent to 71,00,619 crore in the cur­rent fiscal. The pace will increase further in 2016-17 at 15.79 per cent to 71.16 lakh crore, with the full imple­mentation of the Vllth Pay Commis­sion award. The outgo towards salary will further rise in 2017-18 to over 71.28 lakh crore. “The award of the Vllth Pay Commission and its impact on government finances poses a risk,” said the statement. It also raised con­cerns about the rising pension bill of government employees saying it will rise to 788,521 crore in current fiscal.

Four stages

Another issue that the next budget will have to factor in is the outgo on account of One-Rank, One-Pension (OROP) to ex-servicemen. The cost of OROP is reckoned at 79,000-20,000 crore, depending on who you include and how you calculate the rate of pension. But the amount would def­initely get bigger, if the government includes the ex-personnel of all the para-military forces like CRPF.

This is for the first time that the government is beginning budget prep­arations process seven months ahead of presentation on the last working day of February. The preparations begin with the issuance of the budget

It has been pegged at over 71.02 lakh crore in 2016-17 and over 71.12 lakh crore in 2017-18.

circular, which marks the beginning of the budget formulation exercise. Last year, this circular was issued on 10 October. Such a circular fixes the time line for various ministries to fur­nish information to the finance min­istry. It talks about methods to be followed for revenue and expenditure estimates. The budget is made in four stages – estimates of expenditures and revenues, first estimate of deficit, nar­rowing of deficit and presentation and approval of budget.

The budget-making process begins with various ministries providing ini­tial estimates of plan and non-plan expenditures. An assessment of expected revenues likely to flow into the government treasury is also done. The budget exercise also involves consultations with several interest groups like industry, traders’ bodies and trade unions. In addition, various government departments make expenditure pro­posals to the finance ministry.

As for the actual increase in sala­ries, there is speculation that it could be in the range of 15-40 per cent. The recommendations are likely to be implemented by the state gov­ernments also, once the Central government goes ahead with the implementation. The governments of Gujarat and Madhya Pradesh have already hinted at implementing the Vllth Pay Commission recommenda­tions from 1 January 2016.

The hike may not be as big as last time when it was driven by a lot of arrears but it will definitely boost the buying powers of a large number of government employ­ees. It is a known fact that pay hikes lead to a pick-up in consumer demand and growth revival. Also, the boost in ‘discretionary spend­ing’ of the middle class in Tier III and Tier IV towns (where government employees constitute 50-60 per cent of the middle class) could kick off the real estate markets.

However, the flip side of the Pay Commission award is that it could fuel inflationary pressures which have settled down, of late.

♦ RAKESH JOSH1 [email protected]


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