Mumbai:
RBI Governor Raghuram Rajan today said the Seventh Pay Commission
recommendations will not upset fiscal maths as additional expenditures
will be offset by either surplus revenues or expenditure cuts.
RBI Governor Raghuram Rajan today said the Seventh Pay Commission recommendations will not upset fiscal maths.
In
the fifth bi-monthly monetary policy review for 2015-16, the Reserve
Bank said the implementation of the Pay Commission proposals, and its
effect on wages and rents, would be factored in by the RBI in its future
deliberations.
"In
the broad sense, yes there is going to be additional expenditure, but
that will be offset presumably by either additional revenues raising or
cuts elsewhere so that the fiscal consolidation path is maintained,"
Rajan said while addressing reporters after the monetary policy
statement.
The
7th Pay Commission has recommended increase in remuneration of about
one crore government employees and pensioners which is estimated to
impose an additional burden of Rs 1.02 lakh crore on the exchequer in
2016-17.
The new pay scales, subject to acceptance by government, will come into effect from January 1, 2016.
Rajan
said the government had anticipated the consequences of Pay Commission
recommendations and hence the fiscal path is expected to be maintained.
"We
don't feel there will be a significant effect on aggregate demand
provided you maintain the fiscal path. Of course, investment in some
ways may be (of) higher quality than certain kind of spending and
therefore one would hope that you would uncover space elsewhere for the
public investment which we really need," Rajan added.
In
the monetary policy statement, RBI said the direct effect of Pay
Commission implementation and its "effect on aggregate demand is likely
to be offset by appropriate budgetary tightening as the government stays
on the fiscal consolidation path".
The
government had unveiled a fiscal consolidation roadmap in 2015-16
Budget under which fiscal deficit was to be brought down to 3.9 per cent
of GDP this fiscal, 3.5 per cent in 2016-17 and 3 per cent by 2017-18,
respectively.
Fiscal deficit in 2014-15 was 4 per cent of GDP.
RBI
Deputy Governor Urjit Patel said the increase in the House Rent
Allowance of central government employees post Pay panel award would get
reflected in the retail inflation data.
"But that is a one time level change and unless there are wider externalities, we will most likely look through that...
The
impact will be felt from April onwards for 6-8 months. You will see an
index change, but that will likely be looked through by RBI," Patel
said.
Several
rating agencies and brokerages have said that a proposed 23.6 per cent
hike in salaries and pensions of government employees could hurt India's
finances.
PTI
