Raising concerns over the likely impact of Sixth Pay Commission on economic growth, the Reserve Bank on Thursday said the government should meet the additional outgo by increasing its revenues.
"In the interest of continuing with the growth momentum, it is essential that the impact of the Sixth Pay Commission (SPC) be absorbed without impairing the process of fiscal consolidation," RBI deputy governor Rakesh Mohan said while delivering a lecture at the Institute of Economic Growth (IEG) here.
Pointing out that the Pay Commission award could increase the expenditure of the Centre and states by one per cent of Gross Domestic Product, he said the government should continue its efforts to improve tax compliance.
In addition, he said, the government should endeavour to contain subsidies and levy appropriate user charges to augment non-tax revenues to adhere to the targets prescribed in the Fiscal Responsibility and Budget Management Act.
He also said that unlike the situation that prevailed at the time of the Fifth Pay Commission (1996-97), the SPC would be implemented when the economy is on a high growth trajectory, coupled with tax buoyancy.
The SPC, appointed by the UPA government for central government employees and pensioners, is expected to submit its report in the next few months.