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Tuesday, March 4, 2008

Sell PSUs to meet Sixth Pay Commission implementation cost?

Finance minister P Chidambaram proposes to meet rising wage cost of government employees after the Sixth Pay Commission from the proceeds of disinvestment in state-run companies.

There is great scope for stake sales in public sector companies, the finance minister said, adding that the central budget had factored in possible wage increases for government employees, once the pay commission submits its recommendations.

The finance minister, during his budget speech, had also spoken about listing all public sector undertakings. However, the chances of the government moving ahead look remote given the negative impact it would have on votes.

Prime minister Manmohan Singh also supported the view as he too sees no other way of raising money for the UPA government's pet programmes like loan waiver.

Economists say the 2008-09 budget is storing up public finance problems for the future, with its Rs60,000 crore loan write-off for farmers and no provision for a potentially huge increase in employee salaries.

Economists also said details on how the massive debt write-off would function were conspicuous by their absence, and the impact of this, along with the pay rise for government workers and rising food and fertiliser subsidies, would widen the fiscal gap.

"What is hidden is more important than what is revealed," M Govinda Rao, a member of the prime minister's Economic Advisory Council, told a meeting of economists this week.

He said the burden would fall on the next government. Whichever party comes to power after the elections next year will be a loser on the fiscal front, Rao said.

According to the government, the centre's fiscal deficit will fall to 2.5 per cent of gross domestic product in fiscal 2008-09, which starts on April 1, from an estimated 3.1 per cent this year.

But that does not take into account the Rs60,000 crore proposed to be written off.