Finance Minister Arun Jaitley is expected to announce the higher allowances after the budget for 2017-18.
Modi scrapped Rs 500 and Rs 1,000 banknotes on November 8 in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed to the taxman.
Officials fear the move will delay higher allowances announcement for much longer than originally expected, as millions of people continue to queue at banks and ATMs for cash and the government doesn’t want to pay higher allowances now.
“We had thought the demonetisation will be a game changer,” said one official, who involved with the process of higher allowances, adding the Reserve bank should have taken more steps to ease the pain of ordinary people.
“We still have to work on the higher allowances.”
Finance Minister Arun Jaitley is expected to announce the higher allowances after the budget for 2017-18.
The official said the cash crunch had hit the Finance Ministry to face pressure from the central government employees’ unions who want immediate announcement of higher allowances.
The ‘Committee on Allowances’ headed by the Finance Secretary Ashok Lavasa has been ready to submit its report since October but the government gave extension the committee till February 22, 2017 to submit the report on higher allowances for getting normalized the cash crunch position, he added.
The 7th pay commission had recommended of abolishing 51 allowances and subsuming 37 others out of 196 allowances, hence the ‘Committee on Allowances’ was formed to look into it.
Another finance ministry official said, the central government has deferred a hike in allowances of its 10 million employees and pensioners to cut its spending bill as economic growth for the current fiscal year to March 2017 could fall below the Reserve bank bank’s revised estimate of 7.1 percent, putting pressure on deferment of higher allowances announcement.
“We are facing very uncertain times,” said the official. “The government should weigh the impact of demonetisation on higher allowances.”
The central government had already notified the 2.57-time hike in basic salary of its 10 million employees and pensioners as per the 7th Pay Commission recommendations.
The pay hike had been made effective from January 1, 2016 but allowances are paid to the central government employees according to the 6th Pay Commission recommendations until issuing of higher allowances notification.
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