Government was not worried about fiscal deficit towards the implementation of the 7th Pay Commission

Finance Minister Arun Jaitley on Friday said he was not worried about fiscal deficit and government would be able to meet its target despite additional outgo towards the implementation of the 7th Pay Commission.

He admitted however that the impact of implementing the pay commission’s recommendations, which will result in an additional annual burden of Rs 1.02 lakh crore on exchequer, would last for two to three years.

“I am not particularly worried about the fiscal deficit target,” he said while replying to questions on the impact of the recommendations on public finances at the HT Leadership summit.

He further said that besides achieving the target, the government has also been able to improve the quality of fiscal deficit. The government proposes to bring down the fiscal deficit to 3.9 per cent of GDP in 2015-16, 3.5 per cent in 2016-17 and 3 per cent by 2017-18.

“If you achieve a fiscal deficit by either cutting down expenditure or withholding tax returns, then you may strictly have statistical figure, but the quality of the fiscal deficit will always be suspected…we have concentrated on the quality of the fiscal deficit and we will probably be able to maintain it,” he added.

As regards the impact of the Pay Commission award to central government employees, Mr. Jaitley said the normal rule is that the expenditure on salary and pension should be 2.5 per cent of the Gross Domestic Product.

The ratio will deteriorate in the initial years with the implementation, he said.

However, “…as the base of the GDP increases, by the third or the fourth year, the spikes come down and (thereafter) you reasonably reach that 2.5 per cent figure back… These pressures will be for the next 2-3 years,” the Minister added.