| It's difficult to estimate just what the SPC will do, but if the Fifth Pay Commission's (FPC's) largesse is to be replicated, the SPC will single-handedly destroy much of the fiscal consolidation achieved between the Centre and the states since 1991. Indeed, in the first year of the SPC's implementation "" the report will be out in this government's tenure but the implementation will be left to the next one "" the combined government salary bill will nearly double. Over the first four years, preliminary estimates indicate the central government's wage-pension bill will rise by Rs 217,332 crore while that of the states by Rs 465,684 crore, taking the total to Rs 683,016 crore, or 2-2.5 per cent of GDP. |
| The age-income profiles of government employees (3.7 million for the Centre and 9.2 million for the states) have been got from the Invest India Foundation's latest all-India household survey. The estimated salary bills got using this method are roughly comparable with the budget estimates for the current year. |
| After this, various assumptions are made. For one, it is assumed the SPC will also increase the base salaries by around half "" the FPC increased the basic salary by around 3.2 times, but since there was a DA component of 160 per cent which got merged into the basic, the effective hike was around 50 per cent, after taking into account the new DA that was in effect when the FPC was implemented. After this, the rest is maths, assuming that the FPC formula of merging the DA and basic once DA crosses 50 per cent continues. It is also assumed the SPC will be effective from October 2006, the date it was set up (this is what happened in the case of the FPC), and that's why the graphics have large "pay arrears" in the first year. |
| How realistic are the assumptions that the SPC will go the way of the FPC? Frankly, it's difficult to tell, but this preliminary exercise errs on both sides, and hopefully the two cancel out! So, for instance, the absolute value of "commutation" is taken to be the same even in the SPC scenario "" "commutation" is that part of the pension stream that a retiree gets on retirement and since it amounts to getting a hefty cash balance upfront without any interest deduction, keeping the "commutation" the same on a higher pension base assumes the benefit will be pared significantly. If the SPC decides not to reduce the "commutation", salary-pension expenses will jump significantly. |
| Other assumptions that keep the SPC impact low include not factoring in pensions to existing pensioners "" while the Centre shelled out Rs 21,312 crore on pension in 2006-07, the states gave another Rs 47,626 crore. This has been done because there are no data on the age of existing pensioners. Pensions have been calculated only for those employees who will retire in the next four years. If the SPC decides that pensions will be common across ranks "" a joint secretary who retired in 1990 will get the same pension as one who retires in 2009 "" this will also lead to a sharp jump in payouts. The simulations do not include defence salaries and pensions (the number of defence pensioners is nearly twice the number of serving personnel!). Nor has any attempt been made to examine the impact of "quasi-government" employees, or those whose salaries get paid out of government coffers one way or the other "" this includes teachers in government schools, for instance. The number of quasi government employees runs into millions "" in the case of the states, it is roughly half the number of those on direct rolls of the government. |
| In other words, even if the SPC decides to be less generous than the FPC, the exchequer's going to take a bad hit. Not surprising then, that Sinha wants to stay far away from North Block. |
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