States pay two-thirds of tax revenues as salaries

State governments are saddled with a high salary and pension bill for its employees, leaving very little for public funding of development schemes and investments for the creation of productive assets, said a study presented to the 13th finance commission. HT Correspondent reports.

State governments are saddled with a high salary and pension bill for its employees, leaving very little for public funding of development schemes and investments for the creation of productive assets, said a study presented to the 13th finance commission.

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According to the report, direct and indirect employees of states governments form less than 6 per cent of the paid workforce and roughly 2 per cent of India's population.

“Aggregate payments towards salaries, lump sum terminal benefits (commutation, gratuity, leave encashment) and monthly pensions on an average amounted to 67.3 per cent of the states’ own tax revenue,” said the study.

The study was conducted by Subhash Garg, principal secretary of the Rajasthan government and Gautam Bhardwaj, managing director, Invest India Economic Foundation, a Delhi-based research organisation.

“Since salaries and pensions consume a substantial part of the states’ own revenues, the ability of any state to plan and implement any development expenditure is directly impacted by its inability to clearly estimate its future commitments on retirement benefits,” Bharadwaj told Hindustan Times.