The 4-month extension of the 7th Pay Commission may prove to be a breather for the PM Narendra Modi government in its efforts to settle the One Rank One Pension (OROP) issue besides providing more time to look at the ways to generate additional money required to fund the pay-hike burden of the central government employees due to the Commission’s recommendations.
The government would do well by referring the OROP issue to the 7th Pay Commission quickly — the thought is already floating in the top government circles — as its recommendations will have a bearing on the demand of the defence veterans as salary and pension hikes for the current employees would mean that the gap between the pension of those who have retired earlier and those retiring from next year onwards will widen further even if they held the same rank.
In fact, the OROP was dropped in 1973 following the 3rd Central Pay Commission recommendations, and the demand for reinstating it has been there since then.
While PM Narendra Modi has accepted the OROP, in principle, it would be a good idea to let the 7th Pay Commission find a way to implement it in a manner that is practical in terms of bearing its burden and a reasonable linking of the pensions of the past and future retirees.
The recommendations of the commission, if the government accepts it, would be applicable from January 1, 2016.
As it has got an extension till December 31st now, the government will have to provide for the additional burden on the exchequer in the next budget.
In its medium-term expenditure framework statement laid before Parliament this month, the finance ministry has pointed out: “An important requirement for projections of salaries is to adequately provide for the increase in Dearness Allowance and normal annual increments. However, the projection period falls under the award period of the VII Central Pay Commission (VII CPC). In view of this, a higher than normative growth over the outlay of 2015-16 (B.E.) has been provided for 2016-17; whereas, a normative growth has been provided in 2017-18 (second year of projection period)..…It is pertinent to mention here that, award of VII CPC and its impact on Government finances poses a risk”.
Similarly, for pensions too, which includes both Defence and Civil pensions — higher than normative growth has been provided for the projection of outlay on pensions during 2016-17.
The expenditure on central government employees’ salaries is projected to grow to Rs 116510 crore in FY17 from Rs 10,0619 crore budgeted for FY16.
In case of defence, the statement says: “Defence expenditure on Revenue account mainly comprises of salary expenditure of armed forces and their operational expenses. In view of the likely impact of the award of the VII CPC, higher than a normative growth over the base of Rs 1.52 lakh crore (B.E. 2015-16) has been provided during the first year (2016-17) of the projection period”.
The 7th Pay Commission, therefore, has the opportunity now to come out with the recommendations according to the government’s pockets so that a higher fiscal deficit burden could be avoided, especially when there is a need to push public investment to boost growth.