Pay hikes to constraint govt's fiscal position: S&P

The implementation of Pay Commission's recommendations, which will increase the annual burden on the exchequer by Rs 1.02 lakh crore, will make it more difficult for the government to stick to the fiscal consolidation roadmap, Standard & Poor's said on Friday. "The Pay Commission award will put pressure on the fiscal position of the government and would act as a constraint to stick to the roadmap for fiscal consolidation," Standard & Poor's Rating Services India Sovereign Analyst Kyran Curry told agency. The 7th Pay Commission on Thursday 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 new pay scales, subject to acceptance by the government, will come into effect from January 1, 2016. "India has a long history of high fiscal deficit and borrowing. The recommendations make the Government job of achieving the 3.6 percent fiscal deficit target in 2016-17 more difficult," Curry said.

On whether it would impact the India's sovereign credit rating, he said, "The Pay commission recommendations in isolation will not impact rating. However, we will closely watch any breach in the fiscal deficit roadmap". Finance Minister Arun Jaitley has already postponed the fiscal consolidation roadmap by a year in the Budget for 2015-16.

As per the revised roadmap, fiscal deficit was to be brought down to 3.9 percent of GDP in 2015-16, 3.5 percent in 2016-17 and 3 percent by 2017-18. The deficit in 2014-15 was 4 percent of GDP. US-based S&P has assigned 'BBB-' rating on India with a stable outlook.

'BBB' is the lowest investment grade rating.