 "Expenditure Secretary Manoj Govil")
Expenditure Secretary Manoj Govil, in post-Budget interaction with Ruchika Chitravanshi and Asit Ranjan Mishra in New Delhi, spoke about issues ranging from Unified Pension Scheme (UPS) and pay commission to continued thrust on capital expenditure. Edited excerpts:
How do you see the expenditure scenario evolving for the central government with many fresh pressure points in the near term — pay commission, Finance Commission and UPS getting implemented?
First UPS. We have provided for it in the Budget. For the Finance Commission, we will receive the report around October and then know the implication for the central and state governments. For pay commission, we have started the process of consultation for framing the terms of reference. Then, the names of people in the commission will be notified.
We don't expect to receive the report before the preparation for next year's Budget, which starts around October-November. So, the financial impact (of the pay commission) will be hard to estimate. It is likely that for FY27, there would be some impact. For FY26, we don't think there is any financial impact immediately. In FY27, there may be arrears to be paid for three months of FY26.
Do you see those pressures being easily absorbed by the central finances or could there be a diversion from the tax to GDP path?
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We don't know what allocation will be finally recommended by the Finance Commission. We have some idea as to what is the raise given by previous pay commissions. One thing is certain — in FY27, we will probably need to provide some additional amount on account of the finance or pay commission recommendations.
What is the intention behind allowing pension accrual only after superannuation in UPS? Is it to reduce the fiscal impact on the government?
The way we structure the scheme can have different consequences on the corpus. The corpus value has to be maintained, because it is essentially from the corpus value that the assurance is being given. Second, this scheme has just been rolled out. It will get operationalised from April 1. Once we have a couple of years, then we'll know how much corpus is accumulating. What are the returns on the corpus? There could also be some ideas about the investment philosophy of the central fund. The committee said that we should review it once every three years. Look at the assumptions again. Are we making adequate returns? Is the fund viable? We do not want to have a fund which is not viable.
Do you see almost everybody shifting to UPS?
The UPS provides a full measure of protection against inflation, which is a very valuable thing. We don't have very good inflation indexed annuity products in the market right now. Maybe the market will also develop in the future. But by and large, most employees could consider UPS as a good option.
Are you nudging states also to shift to UPS?
We haven't had a formal conversation with the states on this. Many are looking at the circulars we have issued. The next part of the process is that the Pension Fund Regulatory and Development Authority (PFRDA) has to form a regulation to operationalise the UPS. PFRDA has issued the draft regulation for stakeholder comments.
Experts say that everyone shifting to UPS may mean that PFRDA may become defunct.
PFRDA has some schemes which can still exist. And, this is only the central government. State governments may or may not go for UPS. The same is for private organisations. Even the regulation of UPS is with the PFRDA. We may have different investment patterns for the central fund as compared to the individual fund. As an individual, when I am retiring, I don't want much risk to my portfolio. Markets go up and down. But for the central fund, we can probably take more risk. Even for the default pattern of investment, some people have said that we probably need to increase the equity exposure.
What is the thinking on the government corpus?
The thinking is that maybe we need to have more equity exposure as compared to the benchmark for individuals. Given that on average, equities give better returns than debt products, and that the risk appetite will be probably higher for the central fund, we may have a different philosophy. Now, this still has to be worked out.
Can you elaborate on the kind of reforms we are looking at for state capex loans?
We have to issue the circular for FY26. We will now undertake consultations with various ministries on the proportion of tied and untied parts and the reforms to be included.
The subsidies have been kept flat this time. What is the reason?
Subsidies have shown a decline in trend. Some of the subsidies are hard to estimate because they also depend upon international prices, the price of petroleum and fertilisers. They have certain volatility.
There is a compression in overall expenditure as a percentage of GDP.
When you are bringing the fiscal deficit down, it will have some implication for the aggregate expenditure. But the nature of the expenditure has not changed much. In fact, capital expenditure is slated to grow significantly. If you also include the grants that the Centre gives to states, the allocation in the revised estimates for FY25 is around Rs 13.18 trillion. Next year, it will be around Rs 15.48 trillion.
