Tuesday, 12 April 2016
Sunday, 10 April 2016
Consumer Price Index for Industrial Workers (CPI-IW) – February, 2016 and DA
The All-India CPI-IW for February, 2016 decreased by 2 points and pegged at 267 (two hundred and sixty seven). On 1-month percentage change, it decreased by (-) 0.74 per cent between January, 2016 and February, 2016 when compared with the decrease of (-) 0.39 per cent between the same two months a year ago.
The CPI is stable or declining from November 2015
CPI as on July -15 is 263 Points
CPI as on Aug -15 is 264 Points
CPI as on Sept -15 is 266 Points
CPI as on Oct -15 is 269 Points
CPI as on Nov -15 is 270 Points
CPI as on Dec-15 is 269 Points
CPI as on Jan 2016 is 269 Points
CPI as on Feb 2016 is 267 Points
Expected DA as on 1st July 2016 is 4% to 5%
While this will result in less cash in the hands of higher-income employees, as a sweetener they will get income tax rebate on the amount invested.
A finance ministry official confirmed that preliminary discussions around this proposal were held at a meeting on Thursday, but no decision on its implementation was taken. “The issue was discussed. We are looking at all options,” he said.
“The proposal entails that through a provision under Income Tax Act, tax rebate should be offered to all employees receiving extra salary income through pay commission in the year 2016-17 and 2017-18, provided the money is invested in the bond,” added the official.
The government will have to additionally shell out Rs 40,000-50,000 crore annually on account of implementation of the seventh pay commission recommendations with effect from January 1, 2016.
If this proposal is accepted, a portion of this money will be used to capitalize banks.
According to finance ministry estimates, state-run banks will require Rs 1.8 lakh crore of additional capital in the next four financial years, of which Rs 70,000 crore will be provided by the government.
The government has budgeted Rs 25,000 crore for bank capitalisation in the current fiscal. While the government has said it has made adequate provision in the Budget to cover the extra spending on account of the pay commission recommendations, analysts reckon it is not adequate and full implementation of award will make it difficult to achieve the fiscal deficit target of 3.5% of GDP.
“Increase in government employee wages and pension expenditure on account of seventh pay commission recommendations is not fully provided for in the Budget,” Morgan Stanley had said in a report.
The proposal currently under consideration gives the government the leeway to meet both its pay commission and bank capitalisation commitments without putting the fiscal deficit target under threat. Bonds will provide the exchequer some wriggle room. The payment will become due when bonds mature, leaving the government with only the interest payment liability in the current fiscal.
The flip side is that the proposed scheme could annoy government employees expecting a greater take-home pay. Hence the scheme has a tax exemption lollipop.
A second government official said this amount will be used to recapitalise banks through a special bank capitalisation fund that will invest in perpetual non-redeemable preference shares issued by banks. Banks will pay 5.1% dividend that is also proposed to be exempted from the dividend distribution tax. The fund will in turn pay 5% interest to government employees, retaining 0.1% as administrative charge.
“This interest income will also be tax free for government employees,” he said, which will increase the effective yield. The government will eventually pay back the amount in four equal investments after 8, 9, 10 and 11years, spreading the fiscal burden of repayment over that period. It will guarantee payment of 5% interest and repayment of deposits irrespective of whether the banks pay the dividend or not, the official added.