Black money law helps OROP soldier on

Those who have retired after a lifetime of defending the nation will get their dues without hurting the exchequer perhaps because those who hid their unaccounted wealth from the taxman have paid theirs.

Business Standard has learnt from senior government sources that the three month-compliance window under the black money law could garner around Rs 20,000 crore, an amount without which implementation of one rank, one pension (OROP) would have led to stretching of the Centre's fiscal resources. With such proceeds expected through an imposition of 30 per cent tax, and a similar penalty on the value of unaccounted wealth or assets declared by anyone between July and September, the government may be able to stick to the fiscal deficit target of 3.9 per cent of the gross domestic product (GDP), without cutting capital expenditure required to kickstart investments.

"The black money compliance window could fetch the exchequer around Rs 20,000 crore. Without that additional amount, there could be serious problems in finding the spending room to implement OROP," said a senior official, who did not wish to be named. The official added the fiscal deficit target would be maintained, and that the Centre would not compromise with the glide path of achieving a fiscal deficit of three per cent of GDP by 2017-18.

"Once OROP is taken care of without any major spending cuts in other areas, or without revising the fiscal deficit target, the subsequent years will be easier to deal with, even with the implementation of the Seventh Pay Commission, which will come into force from April 1," the official said.

OROP, the contours of which were announced by Defence Minister Manohar Parrikar, will stretch government coffers by Rs 18,000-22,000 crore this financial year. Defence pensions are budgeted at Rs 54,500 crore in 2015-16, which will now climb to Rs 72,500-76,500 crore, approaching the Rs 75,103 crore salary and allowances of defence personnel during the year.

Finance Minister Arun Jaitley had said in Parliament the Centre's salary bill would rise 9.6 per cent to Rs 1,00,619 crore from Rs 91,839 crore in 2015-16 on the recommendations of the Seventh Pay Commission, likely to be made to the government in December. The combined effect would be up to a Rs 31,000 crore rise in the Centre's pay and pensions outgo this financial year.

A second official said without extra-budgetary resources like the compliance window, the finance ministry might have had to force spending cuts in other areas to make room for the pension increase. He said capital expenditure could have been cut and explained, "Other administrative expenses cannot be cut, and neither can spending be reduced further on health, education and the like as the Centre has already reduced its share of expenditure on social sector schemes following the 14th Finance Commission recommendations".

PRICING THE OROP

• Burden due to OROP: Rs 18,000-22,000 crore in FY16
   
• Pay Commission burden: Likely around Rs 9,000 crore in FY16
   
• Combined burden: Up to Rs 31,000 crore
   
• Fiscal deficit target: 3.9% of GDP for FY16
   
• Actual position on fiscal deficit: 69.3% of Budget Estimate (Rs 5.56 lakh crore) till July
   
• After two years of squeeze, capital expenditure rises 39% till July 2015-16 year-on-year

SOURCE - business-standard.