14th Finance Commission’s recommendations related to Pay Commission, Salary, Pension:-
14th Finance Commission’s detail report related to Pay Commission, Salary, Pension:-
Pay and Allowances and Pensions
assessment. The assessment of pensions is based on the growth rate of pension expenditure
obtained from past data. The year-on-year growth of pension expenditure has shown volatility,
with growth declining to a low of 0.42 per cent in 2002-03 and increasing to a high of 70.46 per
cent in 2009-10. Given these fluctuations, it is not appropriate for us to take a long-run trend
growth rate for this expenditure as a norm for assessment. It would be more appropriate to use
the observed growth in the recent past. However, a potential fiscal liability may arise in the future
with the introduction of the ‘one rank one pension scheme’ for Defence Services. The Budget
2014-15 has also made an additional allocation for this scheme, which is reflected in the increase
in the growth of pension expenditure to10.67 per cent over the 2013-14 (revised estimates) growth
of 6.62 per cent. While the Ministry of Finance projects an increase in pension payments by
8.7 per cent in 2015-16, a 30 per cent increase is expected in 2016-17 on account of the impact of
the Seventh Pay Commission, followed by an annual growth rate of 8 per cent in subsequent
years. Pension expenditures between 2011-12 and 2014-15 have grown on a year-on-year basis
at the rate of 9.35 per cent per annum. We are of the view that annual revisions in the Dearness Allowance and annual accretions in the number of pensioners and the corresponding pension obligations can be covered by this growth in pension expenditure during our assessment period.
2001-02 and 2012-13 and at the rate of 10.1 per cent between 2008-09 and 2012-13. In its
submission to the Commission, the Ministry of Defence argued that there has been a decline in
the defence expenditure-GDP ratio over the years and defence expenditure allocation in the Union
budget needs to be increased to expand the acquisition of arms and improve defence preparedness.
The Ministry pointed out that it has not been able to make necessary procurements because of the
constraint of funds and large amounts of committed expenditure. The Ministry also mentioned
that a substantial part of the defence capital budget went into meeting committed expenditures.
The Ministry of Finance has also highlighted the need to increase defence outlays in order to
modernise and maintain defence assets and to finance defence acquisitions. Accordingly, its
projections have provided for an increase in defence revenue expenditure (including salaries) of
30 per cent in 2016-17 which will incorporate the Pay Commission impact, with a stable growth
rate of 20 per cent per annum in the remaining years.
Excluding productivity linked bonus/ad-hoc bonus, honorarium and encashment of earned leave, and travel allowances] more than doubled for the period 2007-08 to 2012-13, from Rs. 46,230 crore to Rs. 1,08,071 crore [If salary of defence services is included, the corresponding figures will be Rs. 73,073 crore and Rs. 1, 84,711 crore].
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