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

Table 3.1

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

Table 3.3

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

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:

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.