India’s Finance Minister States Additional Funding Required for Salary Increases, Reports Reuters

Indian Finance Minister Arun Jaitley informed lawmakers on Friday that additional funds will be necessary for the current fiscal year to accommodate significant salary increases for 10 million state employees and pensioners.

The government anticipates a “some enhancement” in its spending on salaries and pensions for the fiscal year 2016/17, following the off-cycle pay hikes announced in June based on a government pay commission’s recommendations.

Balancing the fiscal deficit target of 3.5 percent of GDP remains a challenge for the government this year, but the finance ministry expressed optimism about achieving the 3 percent target in 2017/18, as indicated in the Medium-Term Expenditure report presented to the lower house of parliament.

Credit rating agencies, including Moody’s, have noted that the wage increases are likely to spur consumer demand, which could lead to inflationary pressures and pose challenges for the next governor of the Reserve Bank of India in meeting its inflation targets.

Prime Minister Narendra Modi’s administration has reaffirmed a central inflation target of 4 percent, with a permissible variation of 2 percentage points, agreed upon with the outgoing governor Raghuram Rajan, for the next five years.

Federal spending on salaries and pensions is projected to increase by approximately 10 percent in the next fiscal year, reaching an estimated 2.58 trillion rupees compared to the current year’s budget estimates.