Govt must generate additional Rs 80,000 cr revenue to accomplish fiscal deficit target : CARE

23 Nov 2015 Evaluate

Amidst the concerns of government achieving the fiscal deficit target, after recommendation of the seventh pay commission's for a 23.55% increase in pay, allowances and pension for government employees, credit rating agency, Care Rating in its report “Impact of 7th Pay Commission” has said that India will have to generate additional revenue of Rs 80,000 crore to meet the government’s self imposed target of 3.5% fiscal deficit at the end of the current fiscal.

The rating agency has said that if the country needs to attain the 3.5% deficit ratio, the government needs to facilitate increase in revenues, as with the likely reduction in the corporate tax rate, there is going to be pressure on the revenue collections. Besides, there have to be some cuts in expenditure, in order to ensure that there are savings which can compensate for this additional cost on salary account and Service tax rates, which have already been increased, could be hiked further.

It further said that the government needs to balance the expenditure with no compromise on capital expenditure because the cushion of further lowering the subsidies may not be available. Further, the government needs to maintain its disinvestment levels in order to reduce the fiscal deficit impact.

However, it said that on the macro front, the increase in salaries and pensions will have macroeconomic impact in the form of improved purchasing power in the economy. Increased expenditure by households would benefit sectors such as consumer durables, electronic goods including mobile handsets, housing and automobiles.

Secondary impact on the same would be seen on steel, electric goods, auto parts etc. Banks would experience increased business in the form of higher home loans. The state government will experience equivalent amount of additional pay hikes to public sector employees. The finances at the state government would hence also be impacted. The states with fiscal deficits would have to generate additional revenues in order to maintain their deficit targets.

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