New pay panel on the cards: Manmohan

Tax regime to be moderate but more broad-based, says PM. 

The government is planning to set up a new pay commission for its employees. Prime Minister Manmohan Singh today said steps would be taken in due course for this.

"We have decided this. The last pay commission was set up in 1994. The time has now come for a new commission. We are preparing for it," Singh said at a press conference here.

The fiscal impact of this decision will be huge. The current wage bill of the government, excluding pension liability, stands at Rs 37,000 crore.

The decision comes despite being advised to the contrary by a committee headed by Cabinet Secretary BK Chaturvedi in June last year. The committee had turned down a request for constituting a Sixth Pay Commission to review salaries and perks of all central government employees.

Officials had then told Business Standard that the opinion was the Centre might not be able to bear the additional burden and that states were just recovering from the impact of the Fifth Pay Commission, whose recommendations were implemented in 1997. Some states were also not keen on revising salaries as they had to bear the additional burden, the officials said.

In fact, in their presentation to the Twelfth Finance Commission, West Bengal, Bihar, Orissa, Assam, Manipur, Meghalaya and Mizoram had sought a mechanism to ensure that the Centre could not announce any pay revision without consulting states.

Before the recommendations of the Fifth Pay Commission came into effect, the wage bill (including pension dues of Rs 5,094 crore) of the Centre stood at Rs 21,885 crore in 1996-97.

This went up by nearly 99 per cent to Rs 43,568 crore in 1999-2000. For states, the impact was also severe. Their wage bill went up by 74 per cent to Rs 89,813 crore from Rs 51,548 crore during the period.

The prime minister offered some indirect insight into what might have prompted the change of mind. Stating that the economy was doing well, Singh said the growth rate of 7 to 7.5 per cent was inching towards 8 to 10 per cent.

"The fiscal situation has improved in the last 20 months. States are flush with cash. If we accelerate the pace of economic growth, things will improve further," he added.

The government move to set up a Sixth Pay Commission is against the advice of the 12th Finance Commission. "The terms of reference are yet to be framed for the commission, but it will be looking into issues of rightsizing the government, efficiency and administrative reforms," said a source.

In other remarks, Singh pointed out the need to increase the country's power-generating capacity and strengthen the transmission and distribution (T&D) system.

"This requires heavy investment," he said. The prime minister will soon meet chief ministers (within the next two weeks) to discuss the power situation. The agenda will include the issue of accelerating generation, reforming the T&D system and improving productivity. "Problems remain (in the sector), but we will lick them also," he said.

The prime minister also hinted at the future direction of the tax regime. He said the tax regime would be moderate but more broad-based.

"We do not believe in confiscatory taxation. If the economy grows at 7-8 per cent, there will be adequate resource base for financing projects," he said.

Singh also said a free trade agreement would be signed with Asean countries by the end of this year.

Replying to a broader question about the reforms process, Singh said the biggest lesson he had learnt in the last 15 years was to "have the stamina to stay the course".

He added that changes of governments had not brought about major changes to the process of liberalisation in the country.

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PMSPEAK

GDP growth rate moving towards 8-10%

Heavy investments needed for power

Tax regime to be moderate but more broad-based