Central government employees who have been enduring a long wait for getting their enhanced allowances as recommended by the 7th Central Pay Commission (CPC) can take comfort from two recent reports. First, an observation by the Reserve Bank of India (RBI) governor Urjit Patel and now, a report by BofA Merrill Lynch Global Research, citing fallout of demonetisation.
According to the BofA Merrill Lynch report, the Narendra Modi government's second income tax amnesty scheme — Pradhan Mantri Garib Kalyan Yojana, 2016 — could fetch a huge amount to offset the financial implication of implementing the 7th CPC recommendations. The scheme was announced as a follow-up measure to demonetisation.
"The Government announced that the second income disclosure scheme (IDS II) will run till March 31. We continue to estimate that it will net the fisc about Rs1000bn/0.7% of GDP of additional taxes. This should allow Finance Minister Jaitley to hold the FY18 fiscal deficit at 3.5% of GDP - same as FY17's - and at the same time fund the 7th Pay Commission and recapitalize PSU banks, without cutting back on public capex," BofA Merrill Lynch said in a note recently.
Earlier, the RBI had said that the implementation of the recommendations of the pay commission for Central government employees won't have an inflationary impact.
In tandem with its efforts to crack down on black money after demonetisation, the government also offered a second amnesty scheme to tax defaulters to come clean by paying higher taxes.
The latest scheme entails penalty and deposit of 25 percent of the (hitherto) undisclosed income in a bank account where the money will be locked in for four years without fetching an interest.
The CPC examined 196 allowances and gave its recommendations on abolishing or raising some of them while recommending others to be subsumed with other perks.
It had proposed 138.71 percent hike in HRA and 49.79 percent for other allowances, while submitting its voluminous report in November 2015.
The recommendations of the 7th CPC cover 47 lakh Central government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the defence forces.