The Centre may need to dip into its internal saving to meet the ₹20,000-crore gap of the total estimated ₹85,000 crore in 2016-17 to pay the hike in salaries and pensions following the government decision to implement the recommendations of the Seventh Pay Commission.

“About ₹20,000 crore will be required. This is exceeding our Budget allocation. But, it is unlikely that we will need to borrow for it. The amount will be raised through internal savings,” said an official privy with the development.

Sources indicated that the government’s decision to pay out all the arrears in the current fiscal is one of the reasons for the requirement of additional funds. In the past, payment of arrears was done in two instalments spread over two financial years.

The Union Cabinet had on June 29 accepted most of the recommendations of the Seventh Pay Commission on salaries and pensions, while setting a separate committee to review its suggestions on allowances.

In effect, it had resulted in an average hike of 14.29 per cent in the basic pay of Central government employees.

“Excluding the payment on allowances, the total outgo on salaries and pensions including arrears will be ₹84,933 crore in 2016-17,” Finance Minister Arun Jaitley had said at the time, adding that it would not impact the fiscal deficit due to adequate provisions in the Budget for the pay panel.

The Union Budget 2016-17 had allocated about ₹1 lakh crore for higher salaries and pensions through the implementation of the One Rank One Pension (OROP) scheme for defence personnel and the Seventh Pay Commission report. Of this, about ₹20,000 crore has been provisioned for OROP and another ₹70,000 crore for implementation of the Seventh Pay Commission report.

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