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Pay panel proposals pose risk to fiscal deficit: Fitch
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SME Times News Bureau | 21 Nov, 2015
US firm Fitch Ratings on Friday said the 24 percent hike in salaries and
pensions for current and former government employees recommended by the
7th Pay Commission could hurt India's finances and efforts to control
the fiscal deficit.
"A recommended 23.55 percent increase in
remuneration for India's central government employees, if fully
implemented, would have a significant impact on the government's wage
bill, and add to challenges the government faces in achieving fiscal
consolidation targets," the ratings agency said in a release.
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
it can reduce spending 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
said the Indian government's debt burden of nearly 65 percent of its
GDP was the highest among its "BBB-" rated countries, which have a
median of 43 percent of the GDP.
The wage increase recommended on Thursday by the Pay Commission would come into effect from January 1, 2016.
Describing
the wage hike recommendations as being higher than expected, HSBC said
past experience showed that such pay revisions "typically boost
consumption, overstretch fiscal accounts and stoke inflation."
"If
it (government) can absorb wage hikes without compromising on its
fiscal consolidation or capex targets, Thursday's wage increase
recommendation could indeed be a net positive for sustainable growth,"
HSBC said in a statement here.
"However, if a compromise is made, then the consumption boost could eventually translate to higher inflation," it added.
Finance
Minister Arun Jaitley, in his February budget, had extended the target
deadline for controlling fiscal deficit to three percent, reasoning that
insistence on a timetable to contain the deficit would harm growth
prospects.
The targets for the next three years have been set at
3.9 percent for 2015-16, 3.5 percent for 2016-17, and 3.0 percent for
2017-18.
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