Deep divide over pay panel pill

The Seventh Pay Commission recommendations will benefit 47 lakh Central government employees and 52 lakh pensioners, which will lead to an additional outgo of ‘73,650 crore from the Union Budget and ‘28,450 crore from Railway Budget.

“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. There may be a few room to rein in the subsidy bill, for example.

Fitch Ratings said the credit score of telecommunication industry players Philippine Long Distance Telephone Co. and Globe Telecom would not be affected even as both firms were expected to ramp up spending ahead of the entry of a third player.

The consensus among analysts is that by accepting the recommendations of the Seventh Pay Commission, the government’s task of meeting its fiscal deficit in the coming year will be challenging.

Fitch added the expansion in the long-term evolution (LTE) network and fibre broadband will drive capital expenditure (capex) investment.

Fitch said the Indian government’s debt burden of almost 65 percent of its GDP was the highest among its “BBB-” rated countries, which have a median of 43 percent of the GDP.

While the move is expected to spur consumption demand in the economy, rating agencies such as S&P and Fitch and analysts from several leading brokerages believe that it would pose a major challenge for the government in achieving its fiscal consolidation road map. Weak divestment proceeds and, importantly, the absence of an additional windfall from low oil prices, compound matters.

“On revenues, the nationwide tax bill (GST) is still facing legislative hurdles while corporate tax rates will be lowered in a staggered manner over the next few years”, added DBS Bank. One basis point is 0.01%. Fitch said whether the medium-term consolidation targets can be realized will depend on whether the government can mobilize higher revenue.

Most of the expenditure due to the implementation of the report would come in the next financial year, 2016-17, he added.