Singh on screen during the media conference (PTI)

New Delhi, Feb. 1: In a decision that could give a spring bonanza to babus across the country and nightmares to budget framers, Prime Minister Manmohan Singh today said a new pay commission could be set up soon to work out raises for around 3.5 million central government employees.

“The last pay commission was set up in 1994. The time has now come to set up a new commission and we are preparing for it,” he told a press conference.

The last pay commission, which was implemented by the United Front government in the late nineties, threw central and state government finances in turmoil because of the steep wage increases.

States usually take a cue from central pay hike recommendations for their own employees. Many states had complained they were near-bankrupt because of the ripple effect of the higher wage bills the central pay commission had recommended.

However, Singh today exuded confidence the move would not hurt the fiscal situation and asserted that states were far better off with many reporting cash surpluses. He added that higher economic growth would improve the fiscal situation.

Officials said the new pay commission is also expected to lay down stricter productivity norms and recommend a reduction in the number of employees.

The government is likely to come out with yardsticks to determine the output of each grade of employees and link pay hikes to output.

Jobs at every level would be rationalised and redundant jobs phased out. Outsourcing is likely to be taken up in a bigger way, according to sources in the government.

Touching upon the upcoming budget, the Prime Minister said taxes would be moderate and broadbased, instead of being “confiscatory” in nature.

He added that India’s economy is inching towards still higher growth rates of between 8 and 10 per cent.

“We are committed to moderate and broadbased tax structure and not confiscatory taxes. If the economy grows by 7-8 per cent, that itself will create enough resources to meet our defined goals,” he said.

Singh added that the increased competitive environment and an expected rise in savings aided by moderate taxation should help spur economic growth.

“Savings should go up by 4-5 per cent from a current 29 per cent of GDP” and this should push economic growth up from 7.5-8 per cent “by at least 2 per cent to a new high of 9-10 per cent.”

The Prime Minister said the country had reaped rich benefits from reforms and this has been recognised the world over. “India was most sought after at the recent meeting of World Economic Forum,” Singh said.

He added that the key to growth would be infrastructure. “The position in our infrastructure sector is very promising. The road sector is humming with activity and we expect an investment of Rs 170,000 crore in the national highway programme in the next seven years.”

Singh said he was in favour of proper pricing of utilities like electricity, but there was always room for well-targeted subsidies for poorer consumers.