Pensions growth a nightmare

Updated: Jul 31 2006, 05:30am hrs
Kerala may not be sipping fiscal champagne with the Centre, but its 13-lakh government staff could teach central counterparts a thing or two about bargaining powers. As the Centre gears up for the 6th Pay Commission next month, Keralas fiscal bosses are busy licking wounds inflicted by the 8th State Pay Commission outgo this year.

Pay parity with the Centre was clinched as early as 1999-2000 in tune with the 5th Central Pay Commission. However, its employeess smiles came at a huge cost to Keralas coffers. Salaries, pensions and interest commitments in this period together constituted 104.1% of the statess revenue receipts (RR). Through a long painful era of an unofficial freeze on appointments and debt swapping, the burden was eased to 91% in 2003-2004.

This year, the revenue-expenditure squeeze story is being written afresh with Rs 1,600 crore being set aside for outgoes on account of the 8th State Pay Commission. What is alarming both for the exchequer and State Planning Board is that growth rate of state pensions has outstripped that of its salaries.

Over fiscals 04 and 05, the salary bill grew only 7.9%, whereas the pension bill ballooned by 26%. More than 50% of Kerala State Electricity Boards (KSEB) Rs 939-crore employee cost is to meet the outgo on terminal benefits, including pensions, says a note by the State Electricity Tariff Regulatory Commission.

At 20.5% of total expenditures, KSEBs employee cost is the highest among the countrys SEBs. The KSEB pension nightmare could soon envelop the states full pension spectrum. At an average of 73.5 years, Keralas life expectancy at birthboth male and femaleis comparable to that of developed countries. According to S Irudaya Rajan of the Centre for Development Studies (CDS), Keralas aged population would touch 72 lakh by 2025. This may choke up asset-producing capital expenditure. So far, the only prudent move has been a shift to the contributory pension scheme. The new LDF government swears by a revenue-pull approach, rejecting the expenditure-control one.

For the crowding out of development expenditure, the biggest culprit has been the tapering off of Central transfers from the common tax pool, says Kerala finance minister TM Thomas Isaac. The Centres economic philosophy has been of punishing performers and rewarding laggards, he adds. The Finance Commissions recent yardsticks also favour big BIMARU states like Bihar.

The latest to strengthen Keralas case is the new World Bank India DPR 2006, which advocates a more nuanced approach in tackling staff issues. If the Centre has left high HDI-driven small states to fend for their own, no government can afford to defer a wage hike, when due, says former state chief secretary CP Nair.