Pay hike bill will hit budget and rating, BMS call it disappointing

Fitch Ratings feels that the govt may not be able to fiscal deficit target

GN Bureau | November 20, 2015



Even as there are mixed reactions to 7th pay commission report, international agency Fitch Ratings said today that a proposed 23.6 percent hike in salaries and pensions for about 10 million current and former government employees could hurt the country's finances and underscore the weakness in its sovereign credit profile.

The pay hike proposed on Thursday by the government panel is smaller than past increases as New Delhi faces pressure to curb its fiscal deficit. It would add at least 1.02 trillion rupees ($15.43 billion) to central government spending in 2016 - the first year of implementation - if accepted.

Fitch said the pay hike could challenge the government's goal of achieving a fiscal deficit of 3.5 percent in the year ending in March 2017, unless India can cut spending in other areas or raise revenues.

"The planned wage increase is sufficient to add substantive challenges to achieving the planned medium-term consolidation targets," Fitch said in a statement.

"Delaying an improvement in India's fiscal position would underscore a longstanding weakness for the sovereign credit profile," it added.

Fitch rates India "BBB-minus" with a "stable" outlook. The credit agency said India's government debt burden of nearly 65 percent of gross domestic product was the highest among its "BBB-minus" rated countries, which have a median of 43 percent of GDP.

Meanwhile, RSS affiliate Bharatiya Mazdoor Sangh termed "disappointing" the recommendations of the pay commission and said it will lead to brain drain from the country.

"The 7th pay commission report is disappointing, its fitment benefit is very less, it will lead to brain drain and would have a bad impact on the economy," said Viresh Upadhyay, General Secretary of BMS.

He said that the recommendations submitted to the government this evening show that there is a huge gap between minimum and maximum.

"It has also not addressed the anomalies," he said.

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