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State of the economy and financial resources of the government – Chapter III of NC, JCM (Staff Side) memorandum submitted to 7th CPC

Chapter III  State of the economy and financial resources of the government. For other Part of NC, JCM (Staff Side) memorandum to 7th CPC

Confederation submitted memorandum to 7th CPC
Employment under Central Government – Group/Grade Pay wise Census – Part I of NC, JCM (Staff Side) of Memorandum submitted to 7th CPC
MHA for pay on par with Army for paramilitary forces in 7th CPC
Chapter III 

State of the economy and financial resources of the government.

For other Part of NC, JCM (Staff Side) memorandum to 7th CPC Click here to view

memorandum+to+7th+cpc+by+nc+jcm+staff side

As per the terms of reference of the 7th Central Pay Commission, the Commission is required to work out the frame work for an emoluments structure taking into account;
  • The economic conditions in the country and the need for fiscal prudence;
  • The need to ensure that adequate resources are available for developmental expenditure and welfare measures;
  • The likely impact of the recommendations on the finances of the State Governments, which usually adopt the recommendations with some modifications;
  • The prevailing emolument structure and retirement benefits available to employees of Central Public Sector Undertaking and
  • The best global practices and their adaptability and relevance in Indian Conditions.

3.2. It is, therefore, necessary to deal with briefly the state of Indian economy and the financial resources available to meet out our demands for wage revision without compromising the need of funds for developmental activities and welfare measures. We shall also briefly mention in this chapter the likely impact of the recommendations on the finances of various States. The prevailing emolument structure available to the employees of the Central Public Sector undertakings shall be dealt with in subsequent chapters.
3.3. It is often stated that the Government of India had to adopt the liberalisation, privatisation and globalisation process of management of economy in the year 1991 to redeem the country from the brink of an economic disaster and later graduate to the pursuance of the neo-liberal policies to spur the economic growth. Whether the policies really brought about prosperity to the millions of our countrymen or left them worse off may be a debating issue, it is certain that the policies had brought about an annual economic growth of sometimes even beyond 9%. It can be emphatically stated that the Indian Corporate houses, benefitted immensely from these policies, that they could rise to the position of challenging the world renowned transnational corporations and even to the extent of gobbling up some of the international giants. The spurt in the economic growth in our country was phenomenal and unprecedented. None of the developed nations with the exception of China could match the rate of growth of Indian economy.
3.4 The National economic growth no doubt got reflected in its revenue resource mobilisation. The revenue receipt of the Government of India rose from Rs. 66047 Crores in 1991-92 to Rs. 1031174 crores in 2012-13 registering an increase of nearly 16 times. The increase registered during the period 2005-06 to 2012-13 is almost three times. Despite the lowering of tax rates, India’s tax collection rose at an extra-ordinary pace. When we submitted our memorandum to the 6th CPC in December 2006, the receipt from indirect taxation was higher than the direct tax collection indicating the painful fact that our economy despite the phenomenal growth had not crossed the barrier between a developing and developed economy, for an increased revenue receipt from indirect taxes is not considered an indicator of a developed economy. The following table indicates the tax collection in the years between 2005-06 to 2012-13. What is depicted in the table tells us a different story altogether, especially when viewed from the fact that the direct taxes rates have remained static since 1994.

Table 3.1
Financial
year
Direct tax
receipts
Indirect Tax
receipts
Total Direct Taxes as a
percentage to
total tax
receipts.
2005-06 165216 199348 364564 45.32
2006-07 230181 242066 472247 48.74
2007-08 314330 279031 593361 52.97
2008-09 333818 269433 603251 55.34
2009-10 378063 245367 623430 60.64
2010-11 446935 345127 792062 56.43
2011-12 493959 391738 887071 55.78
2012-13 556965 474209 1031174 54.01

3.5 Having been consistently registering an increased percentage till 2009-10, the direct taxes collection began to decline as a percentage to the total tax revenue of the Government in the subsequent years, for the Government was perforce to widen the service tax net to combat the ever increasing fiscal and revenue deficit to abide by the provisions of the Fiscal Responsibility and Budget Management Act, 2003.
3.6 Despite the global financial crisis that engulfed most of the capitalist economies in 2008 it must be said with pride that the crisis did not impact the Indian economy as it affected other developing Nations. The global crisis no doubt decelerated our economic growth as could be evidenced from the table of GDP growth rate as depicted in the Economic Survey of 2013-14.

Table 3.2
Growth in GDP at Factor Cost at 2004-05 Price (Percent)

2005-06 2006-07 2007-08 2008-09 2009-10 3R 2010-11 2R 2011-12 1R 2012-13
AE
Agriculture, forestry & Fishing 5.1 4.2 5.8 0.1 0.8 7.9 3.6 1.8
Mining & quarrying 1.3 7.5 3.7 2.1 5.9 4.9 -0.6 0.4
Manufacturing 10.1 14.3 10.3 4.3 11.3 9.7 2.7 1.9
Electricity, gas & water supply 7.1 9.3 8.3 4.6 6.2 5.2 6.5 4.9
Construction 12.8 10.3 10.8 5.3 6.7 10.2 5.6 5.9
Trade, hotels & restaurants, transport & communication 12.0 11.6 10.9 7.5 10.4 12.3 7.0 5.2
Financing, insurance, real estate & business services 12.6 14.0 12.0 12.0 9.7 10.1 11.7 8.6
Community, social & personal services 7.1 2.8 6.9 12.5 11.7 4.3 6.0 6.8
GDP at factor cost 9.5 9.6 9.3 6.7 8.6 9.3 6.2 5.0

Source: Central Statistics Office (CSO)

Notes: 1R- First Revised Estimate 2R-Second Revised Estimate 3R- Third Revised Estimate
AE-Advance Estimate

Table 3.3
Quarterly Estimate of GDP Growth (year-on-year in per cent)

 

2010-2011 2011-2012
2012-2013
Sector Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Agriculture, Forestry & Fisining 3.1 4.9 11.0 7.5 3.7 3.1 2.8 1.7 2.9 1.2
Industry 8.3 5.7 7.6 7.0 5.6 3.7 2.5 1.9 3.6 2.8
Mining & Quarrying 6.9 7.3 6.1 0.6 -0.2 -5.4 -2.8 4.3 0.1 1.9
Manufacturing 9.1 6.1 7.8 7.3 7.3 2.9 0.6 -0.3 0.2 0.8
Electricity, Gas & Water Supply 2.9 0.3 3.8 5.1 8.0 9.8 9.0 4.9 6.3 3.4
Construction 8.4 6.0 8.7 8.9 3.5 6.3 6.6 4.8 10.9 6.7
Services 10.0 9.1 7.7 10.6 10.2 8.8 8.9 7.9 6.9 7.2
Trade, hotels, transport &communication 12.6 10.6 9.7 11.6 13.8 9.5 10.0 7.0 4.0 5.5
Financing, insurance, real estate business services 10.0 10.4 11.2 10.0 9.4 9.9 9.1 10.0 10.8 9.4
Community, Social & personal serives 4.4 4.5 -0.8 9.5 3.2 6.1 6.4 7.1 7.9 7.5
GDP at factor cost (total 1 to 8) 8.5 7.6 8.2 9.2 8.0 6.7 6.1 5.3 5.5 5.3

3.7. Instead of our asserting the success story of the Indian economic growth, it would be better to refer to the observations of the Honourable Finance Minister, made while he presented the Budget for 2013-14 and again when the vote on account for 2013-14 was placed before the Parliament.
“I shall begin by setting the context. Global economic growth slowed from 3.9 percent in 2011 to 3.2 percent in 2012. India is part of the global economy: our exports and imports amount to 43 percent of GDP and two-way external sector transactions have risen to 108 percent of GDP. We are not unaffected by what happens in the rest of the world and our economy too has slowed after 2010-11. In the current year, the CSO has estimated growth at 5 percent while the RBI has estimated growth at 5.5 percent. Whatever may be the final estimate, it will be below India’s potential growth rate of 8 percent. Getting back to that growth rate is the challenge that faces the country.
Let me say, however, there is no reason for gloom or pessimism. Even now, of the large countries of the world, only China and Indonesia are growing faster than India in 2012-13. And in 2013-14, if we grow at the rate projected by many forecasters, only China will grow faster than India. Between 2004 and 2008, and again in 2009-10 and 2010-11, the growth rate was over 8 percent and, in fact, crossed 9 percent in four of those six years. The average for the 11th Plan period, entirely under the UPA Government, was 8 percent, the highest ever in any Plan period. Achieving high growth, therefore, is not a novelty or beyond our capacity. We have done it before and we can do it again.
In September, 2012, Government accepted the main recommendations of Dr. Vijay Kelkar Committee. A new fiscal consolidation path was announced. Red lines were drawn for the fiscal deficit at 5.3 percent of GDP this year and 4.8 percent of GDP in 2013-14.
Government expenditure boosts aggregate demand and it has both good and bad consequences. Wisdom lies in finding the correct level of government expenditure. In the budget for 2012-13, the estimate of Plan Expenditure was too ambitious and the estimate of non-Plan Expenditure was too conservative.
Faced with a huge fiscal deficit, I had no choice but to rationalise expenditure. We took a dose of bitter medicine. It seems to be working. We also took some policy decisions that had been deferred for too long, corrected some prices, and undertook a review of certain tax policies. We have retrieved some economic space.”
Agriculture
Thanks to our hard working farmers, agriculture continues to perform very well. The average annual growth rate of agriculture and allied sector during the 11th Plan was 3.6 percent as against 2.5 percent and 2.4 percent, respectively, in the 9th and 10th Plans. In 2012-13, total food grain production will be over 250 million tonnes. Minimum support price of every agricultural produce under the procurement programme has been increased significantly under the UPA Government. Farmers have responded to the price signals and produced more. Agricultural exports from April to December, 2012 have crossed 138,403 crores.
Green Revolution
Bringing the green revolution to eastern India has been a remarkable success. Assam, Bihar, Chhattisgarh and West Bengal have increased their contribution to rice production.
Any economist will tell us what India can become. We are the tenth largest economy in the world. We can become the eighth or perhaps the seventh largest by 2017. By 2025, we could become a $ 5 trillion economy, and among the top five in the world. What we will become depends on us and on the choices that we make.
2014-15 Vote on account.
World economic growth was 3.9 percent in 2011, 3.1 percent in 2012 and 3.0 percent in 2013.  Those numbers tell the story. Among India’s major trading partners, who are also the major sources of our foreign capital inflows, the United States has just recovered from a long recession; Japan’s economy is responding to the stimulus; the Euro zone, as a whole, is reporting a growth of 0.2 percent; and China’s growth has slowed from 9.3 percent in 2011 to 7.7 percent in 2013. Let me begin with the good news. The fiscal deficit for 2013-14 will be contained at 4.6 percent of GDP, well below the red line that I had drawn last year. More importantly, the Current Account Deficit, that threatened to exceed last year’s CAD of USD 88 billion, will be contained at USD 45 billion, and I am happy to inform the House that we expect to add about USD 15 billion to the foreign exchange reserves by the end of the financial year. Analysts and rating agencies had acknowledged our efforts some months ago and no longer speak about a downgrade. I hope that domestic experts will now agree that the UPA Government meant what it said when it put fiscal stability at the top of the agenda. Last year, when I read the Budget speech, WPI headline inflation stood at 7.3 percent and core inflation at 4.2 percent. Through the year, inflation saw its ups and downs. At the end of January 2014, WPI inflation was 5.05 percent and core inflation 3.0 percent. Both the Government and the RBI have acted in tandem. While our efforts have not been in vain, there is still some distance to go. Food inflation is still the main worry, although it has declined sharply from a high of 13.6 percent to 6.2 percent.
Agriculture
We are proud of the stellar performance of the agriculture sector. Food grain production in 2012-13 was 255.36 million tonnes and the estimate for the current year is 263 million tonnes. Estimates of production of sugarcane, cotton, pulses, oilseeds and quality seeds point to new records. Agriculture exports in 2012-13 stood at USD 41 billion versus imports of USD 20 billion. In 2013-14, agriculture exports are likely to cross USD 45 billion. Agricultural credit is likely to touch 735,000 crore, exceeding the target of 700,000 crore. Agricultural GDP growth increased to 3.1 percent in the five year period of UPA-I and further to 4.0 percent in the first four years of UPA-II. In the current year, agricultural GDP growth is estimated at 4.6 percent.
Ten years ago, we produced 213 million tonnes of food grains; today, we produce 263 million tonnes of food grains. Ten years ago, the installed power capacity was 112,700 MW;today, it is 234,600 MW. Ten years ago, coal production was 361 million tonnes per year; today, we produce 554 million tonnes per year. Ten years ago, there were 51,511 km of rural roads under PMGSY; today, we have 389,578 km. Ten years ago, the Central Government’s expenditure on education was 10,145 crore; this year, we allocated 79,451 crore. Ten years ago, the Central Government spent 7,248 crore on health; this year, it will spend 36,322 crore. Just as there are business cycles, there is a cycle around the trend growth rate of an economy. Over a period of 33 years, the trend growth rate in India has been 6.2 percent. Average annual GDP growth during the period 1999-2004 was 5.9 percent that is below the trend rate. In the next five year period 2004-2009, it was 8.4 percent and, in the period 2009-2014, going by the CSO’s estimate, it will be 6.6 percent. UPA-I and UPA-II have delivered above the trend growth rate.
I wonder how many have noted the fact that India’s economy, in terms of the size of its GDP, is the 11th largest in the world. There are great things in store. There is a well-argued view that in the next three decades India’s nominal GDP will take the country to the third rank after the US and China. Just as the fortunes of the developed countries affect the emerging economies today, the fortunes of China and India will, in the future, have a significant impact on the rest of the world. ”
3.8. From the table given below it could be seen that the expenditure on pay and allowances over the years had been decelerating as a percentage to the revenue receipt and revenue expenditure. Even if the percentage of expenses to Revenue Receipt is maintained at the 2009-10 level i.e. 12.75% an amount of Rs. 23510 crores will become available for the Government to defray the additional expenses that might arise on account of wage revision.

Table 3.4
Expenditure of pay and allowances of central Government Civilian employees including the employees of the Union territories as a percentage to revenue receipts and revenue expenses.

Year Expr. on Pay and Allowances of Civilian Employees of Central Govt. & Union Territories Revenue Receipts of the Central Government Revenue Expenditure of the Central Government Expenditure on pay and Allowances and Allowances of of the Central Expenditure as percentage of
Revenue Receipts Revenue Expenditure
1999-00 33978 181513 249109 18.7 13.6
2000-01 33986 192624 277858 17.6 12.2
2001-02 31407 201449 301611 15.6 10.4
2002-03 33317 231748 362140 13.1 9.5
2004-05 38653 376871 455571 10.26 8.48
2005-06 40418 430940 540637 9.38 7.48
2007-08 46230 649426 734861 7.12 6.29
2008-09 67464 653847 1010224 10.32 6.68
2009-10 89860 704523 1057478 12.75 8.50
2010-11 88650 932685 1186115 9.50 7.47
2011-12 95291 910556 1305195 10.47 7.30
2012-13 95983
(provisional)
1055891 1422087 9.09 6.75

Table 3.5
Table indicating the expenses on pay and allowances of Central Government civilian employees on crucial occasions i.e., 1975-76, 1986-87, 1997-98 and 2009-10 i.e. the years in which the third, fourth, fifth and sixth pay Commissions recommendations were implemented.
 

year Revenue receipts Revenue expenses Pay
and
allowances
% to
rev.
receipts
% to
rev.
expenses
1975-76 8075 7189 1887 22.0 22.8
1986-87 33083 40860 6100 18.4 14.9
1997-98 133901 180350 27430 20.5 15.2
2009-10 704523 1057478 41770 12.75 8.50
3.9. In its report on comparative Public Administration, (Report No. 50, July, 24, 2002) the World Bank observed:
“In order to deliver quality public services governments will need to spend money on goods and services as well as wages and salaries. As a rule of thumb, when this ratio rises over 25%, Govt. risks reducing their effectiveness by squeezing non wage expenditure.”
3.10 . It is seen that the present rate of expenditure on pay and allowances both with reference to its revenue receipts and revenue expenses is far below the limit indicated by the world bank. Only in the years, 1975-76, 1986-87 and again in 1997-98, the percentage crossed over 15. These are the years in which the 3rd, 4th and 5th CPC recommendations were implemented. The demand for interim relief, which is normally granted by the Government as and when the Pay Commission is set up, was not considered in 2006 either by the Government or by the 6th Central Pay Commission. This naturally resulted in the entitlement of about 32 months additional salary as arrears. Despite defraying such huge expenditure, it could be seen from the table that the pay and allowances disbursed in the year 2009-10 amounted to only 12.75% with reference to revenue receipts and just 8.5% with reference to revenue expenses. We, therefore, hasten to add that there is no justification for the apprehension that the wage revision might have an adverse impact on the availability of resources either for developmental expenses or welfare measures. This apart as indicated by us in our submission to the questionnaire and in detail elsewhere in this memorandum, wage revision based on the need based minimum wage concept cannot be denied with any sense of justification on the specious plea of the available resources or capacity of the Government to pay.
3.11. We may pointedly draw the attention of the Commission to the observations made by the 6th Central Pay Commission in their report in Chapter 1.3 (Pages 16 to 27) in which they have detailed the performance of the Indian Economy in the post- liberal era. They have concluded and we quote:

“As such in view of the revenue receipts expected in the future, the Central Government should be in a position to meet the additional expenditure consequent to this Commission’s recommendations”.

3.12 We must also reiterate that the resources of the Government cannot be construed to mean only what it has chosen to raise but also the potential resources which it is capable of tapping but do not, in consonance with the political ideology of the ruling party. The substantial reduction of the rate of tax especially in the corporate tax segment and the enormous amount of tax concession to the Corporate houses, (the tax forgone in 2011-12 being Rs. 533,582 crores), abolition of wealth tax while widening the service tax (taxing the common man) , the continuous lowering of the tax-GNP ratio and above all the unwillingness to unearth black money generated over the years are indicative of the political ideology that prohibited the tapping of resources. The various expert committees set up by the Government have indicated the enormous amount of black income generation in the country, which is estimated to be not less than one fourth of the GDP. Despite the abysmally low rate of taxation and the huge concessions, exemptions, deductions offered to the Corporate houses, the fact is that the tax receipts of the Government of India had been rising year after year on an average incremental rate of 20 to 25%.
3.13. As per the terms of reference, the 7th CPC is also required to look into the likely impact of its recommendations on the finances of the State Governments. To the reply to Question No. 7 of the 7th CPC questionnaire, we had indicated that most of the State Government employees presently have a better pay, perks package than available to the Central Government employees.
It is also, however, a fact that none of them has been provided with a pay packet based upon the norms of the need based minimum wage. The question of capacity to pay must arise only if the wages are to be computed on a pedestal higher than the minimum wage concept. Our case before the Commission rests on the need to compute the wage structure basing upon the need based minimum wage concept evolved by the 15th ILC in 1957, which is yet to become a reality even after the lapse of 56 years. The 6th CPC in their report in para 1.3.31 ( pages 26 and 27) has dealt with this question. In fact the Government had raised this matter both before the 5th and 6th Central Pay Commissions. Both the Commissions had deliberated upon it and made their recommendations. These recommendations were accepted and acted upon. We, therefore, submit that the issue does not merit any further consideration of the 7th Central Pay Commission in the light of the observation of both 5th and 6th Pay Commissions.

For other Part of NC, JCM (Staff Side) memorandum to 7th CPC Click here to view

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