The government will ensure that the massive sums of money garnered by the Income Declaration Scheme II, or IDS II, funds the recommendations made by the 7th Central Pay Commission as well as recapitalising Public Sector Banks which have been suffering over the years due to NPAs and issues relating to liquidity. An estimated Rs. 1,00,000 crore of additional taxes under the Income Disclosure Scheme II (IDS II) will be raised which in turn will also help in containing the 2017-18 fiscal deficit besides catering to these two important goals of the central government. This figure was quoted in the Bank of America Merrill Lynch report and is the equivalent of 0.7% of the country’s GDP.
In a research note of the BofA-ML cited by the Economic Times, the report stated,”We continue to expect the government to raise about Rs 1,000 billion/0.7 per cent of GDP of additional taxes under Income Disclosure Scheme II. This should allow Finance Minister Jaitley to hold the FY18 fiscal deficit at 3.5 per cent of GDP — same as FY17’s — and at the same time fund the 7th Pay Commission and recapitalise PSU banks, without cutting back on public capex.” Capital expenditure or capex is the total investment required in any venture and is especially high when it comes to such massive projects. Readers will remember that on December 16, the second IDS was introduced and the scheme will continue till March 31 next year. The IDS II will seek to prosecute black money hoarders with fines and even prison sentences. Such hoarders have time till March-end to come clean by paying 50 per cent tax on bank deposits of legally void currencies post demonetisation in November. Other measures include the provision of parking a quarter of the total sum collected in a non-interest bearing deposit for four years.
Some other points were also highlighted in the same report. The study by BofA-ML also shed light on how much the government would get through a special dividend from the RBI. It was estimated at about Rs. 1,000 billion or 0.6% of GDP, although the report did state that the RBI should reduce the 2017 OMO (Open Market Operation). An OMO is a market operation conducted by RBI by way of sale/ purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
The report added that the additional funds would help the centre to step up social sector spending. If implemented, the decision to aid in the implementation of the 7th Pay Commission‘s recommendation will be made easier. The decision affects 47 lakh Central government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the armed forces. We have reported earlier how the 7th pay Commission recommendations were bringing joy for some while others were not too happy as the implementation was being delayed. We can confirm that the Centre is planning to pay the higher allowances without arrears. Sources in the Finance Ministry have also stated that the Centre is considering hiking allowances for its employees. No official word has been received from any sources.
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