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Budget hasn’t provided for the huge impending burden

Broad-brush calculations indicate that the overall wage bill for the Central government during 2008-09 will increase by 13.3% to Rs73,754 crore.

For administration and Defence, the incremental growth is projected at a meagre 7.8% and 4.6%, respectively, while for the Railways, the increase proposed is a whopping 29.6%.

This anomaly is easily explained, but is inexplicable nonetheless.

Presenting the railway budget, Lalu Prasad had observed, “I have made an ad-hoc provision of nearly Rs5,000 crore for the anticipated recommendations of the Sixth Pay Commission.”

This is reflected in the jump of Rs5,755 crore in his budget under this head, in which Rs755 crore is to meet the normal annual rise in the wage bill of this departmental undertaking.

In contrast, the general budget has chosen to ignore this liability so that there is only a provision for the anticipated yearly surge in staff costs.

No wonder, then, that the budget has envisaged a growth of only Rs1,929 crore in the wage cost of the administration and of only Rs964 crore in this respect for the defence services. Taking these together, the allocation for the next fiscal works out to Rs2,893 crore, which is far less than that provided by the Railways.

If we take into account the fact that the administration alone will boast of an establishment strength of over 19.50 lakh by March 1, 2009 — higher than the estimated total employed by Railways at over 14 lakh — the allocation for pay and allowances should be much more for the establishment if the Pay Commission’s recommendations had been factored into the fiscal policy.

The finance minister was not, clearly, transparent when it came to this issue in the budget. All he would say was, “After the obligations on account of the Sixth Pay Commission become clear, I intend to request the 13th Finance Commission to revisit the roadmap for fiscal adjustment and suggest a suitably revised roadmap.”

In other words, by not making any provision at all, the finance minister has chosen to ignore the huge burden that is likely to befall the exchequer, while the railway minister was careful to apportion a sizeable sum to meet this contingency in the railway budget.
The reason is not difficult to fathom.

This way, the finance minister has underestimated the expenditure, but for which, both the revenue deficit and the fiscal deficit would have been higher than for 2008-09. At the same time, he has avoided the unpleasant task of raising resources to fund this additional expenditure.

That the recommendations of the Pay Commission would be out soon — perhaps as early as mid-April — is amply clear; yet the pass.

Let us hearken back to 1996-97 when the report of the Fifth Pay Commission was awaited. The finance minister had noted in his 1996-97 Budget speech, “The Fifth Pay Commission is expected to submit its report by the end of September 1996.

Funds have been provided in this Budget as well as the railway budget to meet the anticipated expenditure.”

But, the report was delayed. In his 1997-98 Budget, the finance minister made it a point to emphasise that the non-plan spending in 1996-97 was lower than the Budget due to, among other reasons, the “saving of Rs3,000 crore in the provision made for the likely impact of the recommendations of the Fifth Pay Commission.”

Not stopping at this, he went on provide for Rs4,205 crore to implement the Pay Commission report and Rs3,670 crore was set apart for this very purpose by the Railways in that year’s budget.

Guess who the finance minister was? It was none other than P Chidambaram.
More than a decade ago, he deemed it prudent to arm himself with funds to meet the fresh outgo on account of the Pay Commission’s recommendations.

But now, while the same problem stares him in the face, he has refrained from confronting this issue headlong.

It may be useful to recall that, when the Fifth Pay Commission submitted its report, the issue of downsizing the bureaucracy dominated public discussions. In reality, nothing of this sort had happened. At the present juncture too, the strength of the government establishment is growing.

According to the latest budget, during 2008-09, more than 26,800 persons are projected to join the muster rolls of the Centre and the Railways are expected to hire more than 39,000.

Finally, the wage burden of the Union government, Railways and the Defence, though large, do not fully capture the full extent of the outgo on account of bloated size of the bureaucracy.

In addition to pay and allowances, the government has to earmark a huge sum to disburse by way of pensions. The pension liability is envisaged at Rs32,490 crore this year and at Rs34,917 crore next fiscal for all these three wings of the officialdom.

Adding the wage bill to this, the total amount involved is as high as Rs97,596 crore in 2007-08 and may go up to Rs1,08,671 crore in 2008-09. This is not all. Travel expenses are likely to gobble up Rs1,649 crore this year and Rs1,715 crore in the coming year.

If the Sixth Pay Commission’s report is given effect to, the wage burden, already onerous, may turn out to be even more burdensome.