Palpable nervousness in a state just beginning to find its fiscal feet

Updated: Jul 31 2006, 05:30am hrs
With Orissa yet to recover from the effects of the 5th Pay Commission, the nervousness in the states finance department is quite palpable. Its finances had reached a point where it had to borrow money to meet the salary and pension bills. The state is only just beginning to find its feet, following strict expenditure compression and revenue generation measures.

State finances were greatly affected by the 5th Pay Commission, admits state finance minister Prafulla Chandra Ghadei. The state had no option but to implement the recommendations once the Centre accepted it. Now, given its scope for revenue generation, the state is not in a position to meet any additional fiscal burden arising from the 6th Pay Commission recommendations.

With the implementation of the 5th commission in 1997-98, benefiting 4,81,603 employees, the states salary and pension rose to Rs 2,940 crore in 1997-98 from Rs 2,316.75 crore in 1996-97.

From 27.59% of total revenue expenditure in 1980-81, salaries (at Rs 2,291.46 crore) rose to 41.40% in 1997-98.

The 5th Pay Commission had also suggested that for every 100% rise in DA, the government should merge 50% of the DA with salaries to revise pay scales. The objective was to delay the need for another commission.

The state government recently merged 50% of the DA with the salaries, unable to resist the pressure from its employees unions. This has meant additional spend of Rs 500 crore on salaries and pensions. The states repeated appeals to the 11th and 12th Finance Commission to compensate it for the resulting financial dislocation have yielded no result.

Meanwhile, chief minister Naveen Patnaik has expressed his governments opinion on the issue to the Centre. Though the state has agreed to the appointment of the 6th pay commission, it has made it clear that the Centre should bear the entire additional financial burden from implementation of the Commissions recommendations.

The Centre should take into account the fiscal position of the states, said Panchanan Kanungo, chairman of the State Institute of Public Finance and Policy. According to him, the Centre should first compensate for the fiscal burden it passed on to the state on account of the 5th pay commission.

Kanungo, the states former finance minister, said the Centre should emphasise more on efficiency and productivity of employees rather than doling out fiscal benefits while implementing the Pay Commissions recommendations.