NEW DELHI: The government is confident of meeting the fiscal deficit target despite additional outgo towards the implementation of the 7th Pay Commission.
Speaking at an event here on Friday, Finance Minister Arun Jaitley admitted the impact of implementing the Pay Commission’s recommendations, which will result in an additional annual burden of `1.02 lakh crore on exchequer, would last for two to three years.
“I am not particularly worried about the fiscal deficit target,” Jaitley said. He further said that besides achieving the target, the government has also been able to improve the quality of fiscal deficit. The government proposes to bring down the fiscal deficit to 3.9 per cent of gross domestic product in 2015-16, 3.5 per cent in 2016-17 and 3 per cent by 2017-18.
“If you achieve a fiscal deficit by either cutting down expenditure or withholding tax returns, then you may strictly have statistical figure, but the quality of the fiscal deficit will always be suspected. We have concentrated on the quality of the fiscal deficit and we will probably be able to maintain it,” he added.
As regards the impact of the Pay Commission award to Central government employees, Jaitley said the normal rule is that the expenditure on salary and pension should be 2.5 per cent of the GDP. The ratio will deteriorate in the initial years with the implementation, he said.
To Move Cautiously on trimming Small Savings Rate
Jaitley said that the government will bring down interest rates on small savings ‘cautiously’ so as to protect the interest of weaker and vulnerable sections. Citing example of girl child scheme launched last year, he said that “if after one year you immediately slash it down radically, it may not be very politically prudent and therefore, you have to move in that direction but you have to move a little cautiously.” As a lot of people depend on small schemes, Jaitley said, “we as an elected government have to look at it in addition to the economic principles with a sense of political pragmatism.” Sukanya Samriddhi Scheme currently gives the highest interest rate of 9.2 per cent and this was to incentivise the people investing in the name of girl child. RBI and banks have been pressing for reduction of small savings rates and bring them in line with market rate for effective transmission of monetary policy. Earlier this week, RBI Governor Raghuram Rajan said the rate reduction on small savings like PPF and post office deposit is also going to bring down the cost of fund for banks.