Over 4.9 million central government employees will likely start receiving revised allowances, including for house rents (HRA), from July, 18 months after their pays were hiked as per the Seventh Pay Commission’s (SPC) award. While the payout will help consumption — private consumption growth had decelerated a bit in the final quarter of last fiscal and analysts see an incipient pick-up in spending — as the Reserve Bank of India observed in its second bimonthly monetary policy statement for FY18 on Wednesday, it could pose an upside risk to inflation. The RBI has projected retail inflation to be 2-3.5% in the first half and 3.5-4.5% in the second half of the year. The delay in disbursal of the revised allowances has saved the exchequer rs 2,200 crore a month or Rs 40,000 crore cumulatively since January 1, 2016, but the government might partly compensate employees for this with a more generous HRA than recommended by the panel, say sources.
HRA in cities with population above 5 million could be 27% of the basic pay, against the commission’s proposal of 24%, the sources said. The existing HRA in such cities is 30% of the old basic pay — since the SPC hiked the basic pay by an overall 23.55% (weighted average), these allowances will see a big increase in absolute terms. HRA accounts for about 60% of the total allowances bill. The Cabinet would take up the proposals related to allowances later this month, the sources confirmed.
The Ashok Lavasa-led committee on allowances, which was constituted by the government to examine the CPC recommendations, had submitted its report on April 27. The panel has suggested modifications in some allowances applicable universally to all employees and also for those in specific categories, including railways and defence. The report was later placed before the empowered committee of secretaries headed by the Cabinet secretary to firm up the proposals for approval by the Cabinet.
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The SPC had suggested the abolition of 52 benefits and merger of 36 with existing ones to end their separate identities. It had estimated the financial implication of revised allowances would be around Rs 29,300 crore (including for the railways) in a year (Rs 2,442 crore a month).
In the 2017-18 Budget, the government has not explicitly provided for additional costs to be incurred after implementation of the revised allowances under CPC. The officials are confident that the additional burden on the exchequer would be largely be met from savings from allocations made to various departments for the year.
On June 29, 2016, the government accepted the pay- and pension-related recommendations of CPC for over 10 million central government staffers and pensioners, entailing additional cost of Rs 84,933 crore in 2016-17. The Centre’s allowance expenditure is pegged at Rs 69,222 crore (excluding defence) in FY18, 7% higher than the Rs 64,677 crore in FY17, factoring in business-as-usual growth in expenditure. The pay panel had given an overall 23.55% increase in pay, allowances and pensions, including 16% pay rise, 63% surge in allowances and 23.6% increase in pension.