The 7th Pay Commission yesterday recommended increase in remuneration of about one crore government employees and pensioners which is estimated to impose an additional burden of Rs 1.02 lakh crore in 2016-17.
The recommendations that will benefit 47 lakh central government employees and 52 lakh pensioners, will lead to an additional outgo of Rs 73,650 crore from the Union Budget and Rs 28,450 crore from Railway Budget.
Considering the rise in wage expenditure by 0.5 percent of GDP next fiscal and a likely reduction in corporate tax rate, the central government's target to reduce fiscal deficit from 3.9 percent of GDP this fiscal year to 3.5 percent in 2016-17 becomes even more challenging.
The Greek official told Reuters that the budget agreement targeted a primary deficit of 0.25 percent of gross domestic product in 2015, improving to a 0.5 percent surplus in 2016, a 1.75 percent surplus in 2017 and a 3.15 percent surplus in 2018.
While brokerages such as Ambit and Macquarie have reduced their gross domestic product (GDP) estimates, chief economic advisor Arvind Subramanian says it is too early to start revising GDP growth numbers downwards.
The revenue deficit, fiscal deficit and primary deficit which stood at Rs 576 crore, Rs 297 crore and Rs 609 crore, respectively, in 2012-13, increased to Rs 1,614 crore, Rs 4,011 crore and Rs 1,530 crore, respectively, in 2013-14, the CAG said in its report.
As the fiscal year, 2014-15, draws to a close today, the government has managed to contain its fiscal deficit at 4.1 percent of gross domestic product that it had outlined in the Budget last year and reiterated this year.
In their meeting with Fitch representatives, senior Finance Ministry officials highlighted various initiatives announced in the Budget 2015-16 which are expected to boost investment and growth. The officials highlighted the government's commitment to stick to targets set for the fiscal as well as the current account deficits.
"The meeting has been scheduled for March 22 where he would be addressing the board members and talk about announcements made in the Budget to perk up growth," a source said. It has been a custom that the Finance Minister addresses RBI board, consisting of RBI Governor and existing three deputy governors, after the Budget.
The Budget has received a mixed response from global rating agencies with the US-based S&P saying that the annual financial document seeks to keep the fiscal deficit in check despite subdued revenue growth.