Huge wage bill, warn experts

SIXTH PAY COMMISSION: SOME HAPPY, SOME WARY

The proposed Sixth Pay Commission is likely to lead to the government wage bill ballooning massively.

"Last time around, the wage bill as a percentage of GDP went up by 1.5 per cent. That is the only reference point we have. Much depends on the implementation," Shankar Acharya, economist, ICRIER said.

"The Fifth Pay Commission was a financial mess. While there is merit in considering a wage revision, we have to see how it is implemented. Last time around, the government implemented the wage hike, but did not implement the recommendations on downsizing," Saumitra Chadhuri, economic advisor at ICRA, said.

An alarming factor related to the wage bill is the fact that it does not take on record the full extent of the liability.

"While the central government employees are estimated at 3.4 million and state government employees at 7.8 million, they do not include various autonomous bodies and local authorities. The real number is estimated at about 25.5 million against over 11 million on record," Gautam Bhardwaj, director, Invest India Foundation, said.

However, the fact that state finances have shown an improvement in the last three to four years may act as a counterweight.

The latest Reserve Bank report on state finances shows that the resource gap in terms of revenue deficit (RD) and gross fiscal deficit (GFD) declined by Rs 10,981 crore (0.4 per cent of GDP) and Rs 17,940 crore ( 0.6 per cent of GDP), respectively between 2003-04 (Revised Estimates) and 2003-04 (Accounts).

If state finances continue to improve and provided the government sticks to the Fiscal Responsibility and Budget Management Act, it may be in a better position to absorb the impact.