Central government employees and pensioners have reasons to rejoice

Ahead of the festive season, Central government employees and pensioners have reasons to rejoice.

It has just been officially announced that the Union Cabinet has approved an increase in dearness allowance (DA) payable to them by a hefty 10%, to mitigate the impact of the double-digit inflation.

But the impact on the fisc will also be severe as this payment entails an outgo of over `6,200 crore this year itself.

The Union budget has already developed leaks as reflected in the supplementary demands for grants that involve a cash expenditure of nearly `55,000 crore and as the year progresses, more of the same spending pressure is likely.

The petroleum ministry has already made a plea to the finance minister to release funds to make good the under-recoveries of the oil marketing companies, incurred during the first quarter, and since no fresh moves are likely on the deregulation of this industry, a similar demand is likely once the second quarter is over.

Subsidy and other non-plan items may involve more burden. In effect, the bonanza of over `1 lakh crore by way of spectrum auctions may be nullified and the exchequer may be back to square one when the time for reckoning comes.

All this has not weighed in with the Centre when it made this decision to revise the dearnesss allowance.

Indeed, it had no choice as such a neutralisation is mandated by the Sixth Pay Commission.

This is true, but had the government made combating inflation a top priority, things would not have come to such a pass. Instead, it relies on the Reserve Bank of India to rein in demand pressures while depending on the monsoon to come to its rescue.

A wise course of action would have been to act on the supply snafus by boosting production and productivity of agricultural commodities and timely release of stocks in the open market instead of letting them rot.

Sure enough, the babus are happy; but what about the fate of millions in rural and urban India who are also deeply impacted by inflation? Who will come to their rescue?   

At the very least, the government would have done well to quell the inflationary fever so that all benefit and the resultant moderation in inflation may also trim its bloated wage bill. It is the lot of the masses that defies description while the government servants and the organised labour have some wherewithal to cope with the price rise.

However, for the Centre, there is a bigger crisis waiting in the wings.

With the latest hike, the DA component will constitute 45% of the basic salary. According to the Pay Commission, once the dearness allowance goes up to 50% of the basic, all the fixed allowances must be automatically revised upwards by 50% and the travelling allowance will also rise annually.

Considering the pace of inflation, very soon, the stage will come when the dearness allowance will comprise half of the basic pay with all the consequences it entails.

The moral is, act on the price front decisively and all — the man in the street, the bureaucracy and the exchequer — will benefit.