A year after implementation of the new pay- and pension-related recommendations of the Seventh Central Pay Commission (CPC), the government is likely to approve the revised allowances proposed by it for central government staff after the ongoing state elections are over, by March 15. The reworked allowances are likely to be effective from April 1 and at least in the case of the employees in metro cities, the house rent allowances (HRA) could be a little more generous than the CPC’s award, sources told FE.
Taking note of employees’ representations, a finance secretary-led panel is looking at HRA of 30% of basic pay for those in cities with a population of over 5 million, against 24% recommended by CPC, the sources said. In the Sixth CPC award period (2006-2015), HRA was 30% for these cities. A draft Cabinet note for implementation of the revised allowances would be circulated soon, the sources said. HRA accounts for about 60% of the total allowances bill.
The financial implication of revised allowances would be broadly in line with the CPC’s estimate of around R29,300 crore (including for the railways) in the first year. The secretaries’ panel is reviewing the commission’s recommendations pertaining to allowances including rationalisation of some 196 existing benefits. The pay panel has suggested the abolition of 52 benefits and merger of 36 with existing ones to end their separate identities.
With just R4,500 crore additional allocation in the Budget (factoring in business-as-usual growth) for allowances and assuming R7,600 crore expenditure would be borne by the railways, the additional allocation required from the general Budget could be around R17,000 crore, sources said.
This, they added, could be managed without much stress on other expenditure heads, provided the budgeted revenue receipts hold good. Given that currency notes extinguished (reported estimates vary from R30,000 crore to R1.5 lakh crore) as well as extra taxes to be paid by people under the two income disclosure schemes (IDS and PMGKY), the government has enough cushion next year, the sources said, even as many analysts reckon that the Budget assumptions were based on optimistic estimates of nominal GDP growth for FY17 and hence FY18.
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 R84,933 crore in FY17. In the FY18 Budget, the government has not explicitly provided for additional costs to be incurred after implementation of the revised allowances under CPC. The Centre’s allowance expenditure is pegged at R69,222 crore (excluding defence) in FY18, just 7% higher than R64,677 crore in FY17, factoring in business-as-usual growth in expenditure.
“It was a conscious decision not to provide for additional expenditure towards allowances in the FY18 Budget as the secretaries’ committee had not finalised its report. We will provide for it as and when a decision is taken in this regard,” a senior finance ministry official said.
Some government employees see the formation of the secretary panel itself as a delaying tactic, which helped the government save on additional costs towards allowances in FY17 and redeployed the resources to give a spending boost of R36,000 crore to various programmes.
Unlike pay and pension, allowances are paid prospectively. Salary revision took effect from January 1, 2016. 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.