The Union government’s decision to accept the seventh pay commission awards for Central government employees and pensioners is most welcome. Though no one is too sure about the exact number of people to be benefitted by the salary hike in the absence of a single reliable roster for the purpose, it is said that the recommendations will benefit over 47 lakh Central Government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the defence forces. It has been roughly calculated that the pay commission award will mean a financial burden on the union government of over Rs.1,02,000 crore. The amount is hardly much as it accounts for only a little over five per cent of the Union government’s total annual budget.
The Central Government has multiple sources of income, led by direct and indirect taxes, and a big access to borrowing. Going by the Central Government’s first quarter tax collection figure, the direct and indirect taxes alone can pull around Rs.12 lakh crore, if not more, as the total tax revenue for 2016-17. The final tax collection figure is likely to well exceed the budget estimate. Therefore, the government had no hesitation in accepting the pay commission award. After all, the Government employees get a basic pay revision only once in 10 years. It is said the gross increase in pay would be Rs 39,100 crore, allowances Rs 29,300 crore and pension Rs 33,700 crore. The outgo will be borne by both the general budget and the Railway Budget. The latter covers the salaries and pensions of railway employees.
However, the impact of the Central Government salary and pension revision on India’s State Governments and their employees and others working in state-aided institutions such as secondary schools, colleges, universities and local self governments etc. is a matter of great concern as revenue resources of State Governments are extremely limited with sales tax being the only major contributor. Among the other smaller state revenue sources are motor vehicles registration fees, road tax, municipal taxes and various duties collected on death of citizens. Most states are in miserable financial condition and their governments are surviving on borrowings from the Reserve Bank of India, the annual interest burden which continuously eats into their limited resources.
This explains the poor progress of most of the development projects of State Governments and why they fall way behind the union government in terms of the salary structure of their employees and associate bodies. The payment of dearness allowances, the index for which is maintained by the Central Government both for consumer and wholesale prices, is often delayed and deferred by State Governments. The rising gap in gross emoluments of the Central and State government employees is becoming unhealthy for the Indian federation and its stability. Unfortunately, the Central Government and Parliament seem to have remained somewhat unconcerned about the growing income disparity between the Central and State Government employees although it now threatens to reach a flash point in many parts of the country, especially after the seventh pay commission award.
The states having large population such as Uttar Pradesh, West Bengal, Bihar, Maharashtra, Tamil Nadu and Karnataka are in huge debt. The annual expenditure of the border states is constantly growing to check illegal immigration and to maintain peace and security in border districts. Almost all of them are in dire financial stress. India’s most industrialised state, Maharashtra, has the largest debt of Rs.3,38,730 crore. Tamil Nadu — a major industrial and manufacturing hub — has seen the maximum increase in debt (92 per cent) over the past five years, according to an IndiaSpend analysis of state budgets. The debt for all major states has increased 66 per cent over the past five years from Rs 16,48,650 crore in 2010 to Rs 27,33,630 crore in 2015. Maharashtra also has the highest outstanding debt liability, followed by Uttar Pradesh with Rs 2,93,620 crore and West Bengal with Rs 2,80,440 crore. Tamil Nadu has borrowed money at the quickest annual pace, 92 per cent, followed by Karnataka with 85 per cent and Andhra Pradesh with 78 per cent. Some of the states, including West Bengal, are running big DA payment arrears. The Centre can’t remain a mute spectator to such developments.
The existing financial resource divisive pool between the Centre and states is not helping the states, especially the populous ones with limited resources. The expenditure of state governments on police and administration, healthcare, education, rural and urban roads, public transport, water supply and sanitation is constantly growing more as a result of price inflation at the national level than on fresh major investments in such important areas. New state projects mean additional pressure on state finances. Most state government undertakings, including power generation and distribution companies, are in bad shape. States are required to provide for their revenue gap as well.
There are two ways to look at state indebtedness. One could be meant to fund a humming state economy. The other could be indicative of a government living beyond its means. Debt is often used by state governments to meet the growing gap between their annual income and expenditure. Non-plan expenditure, such as paying salaries or making interest payments, eats up most of state government revenues. The total number of state government employees and pensioners and those of state assisted bodies would be close to 1.5 crore. They are part of the country’s human assets engaged in translating policies of state and even Central governments into action. The union government would do well to find ways and means to ensure that state government employees and pensioners are treated on par with its own employees and help the states accordingly. A Centre-state joint panel on government employees’ pay structure and DA after every central pay commission award, would be ideal for the purpose.
