Commission award likely to put FRBM target out of reach

NEW DELHI: While the Sixth Pay Commission may not have succeeded in pleasing middle-rung government employees, economists feel that its recommendations (if implemented) would lead to a substantial increase in the fiscal deficit. Consequently, the government would miss the FRBM bus.

Had it been only the Pay Commission���s recommendations, the government could have handled its Fiscal Responsibility & Budget Management (FRBM) road map. But with the combined effect of oil bonds, fertiliser bonds and farm loan waiver package, there is no hope for meeting the FRBM target, experts said. ���If it would have been just the Pay Commission, it would have been absorbed. But there are several problems burdening the fisc. Oil bonds, fertiliser bonds, farm loan waiver and Pay Commission together will be a problem,��� said leading economist Saumitra Chaudhuri.

Similar view has been expressed by investment banking firm Morgan Stanley.The exchequer would take a hit of Rs 12,561 crore in 2008-09 if the government decides to implement the Sixth Pay Commission next fiscal, besides Rs 18,060 crore as one-time expenditure on paying arrears from January 1, 2006. However, the arrears could be segregated in two parts, in which case it would have to pay Rs 9,030 crore in each instalment.

The cash outgo on account of farm loan waiver would be Rs 25,000 crore in the next fiscal. Government revenues have been buoyant, particularly direct taxes. Riding on the back of the buoyant revenues, the gross-tax GDP ratio is projected to go up to 11.8% of GDP in the fiscal. Direct and indirect taxes are expected to surpass the Budget estimates of Rs 2,67,490 crore and Rs 2,79,190 crore, respectively.

However, with the expenditure on account of fertiliser bonds and oil bonds, which was pegged at Rs 18,757 crore, it is likely to go up in the next fiscal. With the additional expenditure now on account of the loan waiver and the Pay Commission recommendations, the fiscal deficit target of 3%(in FRBM) or 2.5% (as projected in Budget 2008-09) could be missed.

Though, the Pay Commission bonanza in the hands of government employees could give a boost to the manufacturing sector, economists caution that it could have some inflationary effect.

���From the demand side, it is inflationary, but it will also promote growth,��� said Crisil principal economist DK Joshi.