Gujarat worried over sixth pay commission recommendations

New Delhi News.Net
Thursday 28th February, 2008 (IANS)

The recommendations of the sixth pay commission are not yet out, but the Gujarat government is already worried over the impact they may have on the state economy.

The state thinks that once the union government implemented the recommendations of the pay commission for its employees, the state would come under great pressure to hike the salaries of its workforce.

The state's concern over the matter was clearly expressed in the fiscal responsibility management statement that was tabled in the state assembly Feb 25.

Though the statement did not mention what steps Gujarat would take if the recommendations were implemented for central government employees, it has noted that the state has 'limited fiscal space' to accommodate the additional burden of salaries, pensions and interest payments.

They already absorb a major share of the total expenditure. There are about 400,000 state government employees.

Apart from reining in expenditure, the government has to resort to additional resource mobilisation and carry out revenue reforms to place the state's finances on a 'sustainable fiscal consolidation path,' said the statement.

The government has assured that it would make concerted efforts to bring down the revenue expenditure on items like interest payments through debt swapping and pre-retirement of high cost of debt.

Gujarat has also decided as part of its budgetary reforms to phase out its off-budget borrowings and bring them to the budget.

The statement added that efforts would be made to raise resources by widening the tax base and achieving greater tax compliance. But still, the government would have to raise funds from the market.

According to the statement, Gujarat's public debt, which was Rs.721.54 billion ($18 billion) at the end of March 2007, is likely to go up to Rs.789.75 billion by the end of March 31 this year. The public debt is estimated at Rs.867.42 billion for the fiscal 2008-09.

The only comfort was that public debt as a percentage of the state gross domestic product (GDP) has come down from 28.33 percent during 2006-07 to 25.77 percent by the end of March 31, last year.

The statement said it was the aim of the government to keep public debt below 30 percent of the state GDP.

This rising level of public debt has placed Gujarat among the highly debt stressed states along with Maharashtra and West Bengal. The high debt situation in Gujarat provoked union Finance Minister P. Chidambaram to state during the December 2007 poll campaign that Gujarat under the Narendra Modi government was living beyond its means.

He termed the practice of funding development plans through excessive market borrowings as 'wonky economics'.

However, the state has argued that it was left with no option but to resort to deficit financing (market borrowings) to finance development projects. The traditional major sources have virtually dried up and there was the need to compensate the decline of assistance from National Small Scale Fund (NSSF).

It further argued that the shift to market borrowings has actually benefited Gujarat as the average cost of debt was only 8.11 percent compared to 9.5 percent on NSSF loans.

According to the statement, the state's financial management was better and this has been recognised by market by way of being able to raise money at 'competitive rates'.

The state would continue to rely on market borrowing and progressively raise funds through the auction route as suggested by the Reserve Bank, it added.

The statement pointed out that a debt management office has been put in place within the state finance department as government intended to have greater 'market orientation' to its borrowing programmes in the future.

The statement said Gujarat was awaiting a debt write-off of Rs.13.18 billion and interest relief of Rs.10.85 billion on the consolidate past central government loans totalling Rs.94.38 billion as on December 2007.

The state has already put in place the Fiscal Responsibility Law and reduced the revenue deficit to the 2004-05 level, the two key conditions laid down by the twelfth finance commission for writing off debts.

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