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MOSL: ECOKNOWLEDGE-Only two states implement 7th Pay Commission in FY18-FY17 revised deficit

​ECOKNOWLEDGE: Only two states implement 7th Pay Commission in FY18; FY17 revised deficit, however, much higher than budgeted

• Of the 15 major states that have presented their 2017-18 budget by now, only two (Madhya Pradesh and Rajasthan) have made provisions for the 7th Pay Commission (PC) in FY18. Six states have already implemented the 7th PC in 2016-17, while the rest are yet to do so.
  
• Not surprisingly, on an aggregate basis, spending on salary & wages (S&W) is budgeted to grow slower in FY18 (12%) than in FY17 (15%). Furthermore, budgeted spending growth is not very high from average growth over past three years (9.6%) and much lower than 23%-24% growth during the 5th and 6th PCs.
  
• Furthermore, we find that the 5th and 6th PCs boosted physical savings, not consumption. This time, however, with limited arrears and generally lower increase in salaries, a boost to (physical) savings is doubtful, let alone consumption.
  
• Finally, since many states have implemented the 7th PC in the current year, the fiscal deficit for FY17 as per the revised estimate (RE) is much higher than the budget estimate (BE). Nevertheless, with only two states making provisions for the 7th PC next year, the FY18 fiscal deficit for the states is likely to be in control.