Missing: US$15b lost somewhere in India's 1,500-page budget

[NEW DELHI] One of the biggest mysteries in India's budget is how much Prime Minister Narendra Modi allocated for a once-in-a-decade pay hike for government employees.

Economists covering India have spent the last few days scouring through some 1,500 pages of budget documents to discover funds for a roughly 1 trillion rupee (S$21 billion) wage increase proposed by a government-appointed committee. What they've found varies from 150 billion rupees to more than 700 billion rupees.

The size of the salary bill is crucial for two reasons: It would determine the credibility of Modi's plans to narrow Asia's widest budget deficit, and indicate whether a consumption boom can kickstart slumping investment. Both are key to future rate cuts and the sustainability of India's world-beating growth rate exceeding 7 per cent.

"The budget is mysteriously silent" on the proposed pay rise, Nikhil Gupta, an economist at Mumbai-based brokerage Nirmal Bang, said in a report. He added that it appears to have been implemented "only partially, at best." The government hasn't been very helpful in clarifying. Early in his budget speech on Monday, Finance Minister Arun Jaitley said the wage hike would make it an "extremely challenging" year for expenditure. In a press briefing later, he said he accounted for a "significant" amount of the increase without giving a specific number.

His deputy, Jayant Sinha, said a committee of senior officials would figure out how to implement the proposal to boost pay for as many as 4.7 million workers and 5.2 million pensioners. He also declined to bite on a number.

"We have enough room in the budget to be able to put in place what these recommendations will entail," he said.

Finance Secretary Ratan Watal later clarified to CNBC-TV18 that the budget had allocated about 650 billion to 680 billion rupees for increases in wages for government employees.

Yet it's hard to find that number. It's nowhere to be found in any specific line items, and salary hikes are only cited in certain explanatory notes.

Page 199 might hold the answer, according to Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd. It shows total wages rising by 650 billion from the last fiscal year, close to Watal's estimate. Still, it's unclear if that includes mandatory increases tied to inflation.

Even if one assumes the numbers match official estimates, risks remain.

That amount suggests the government "will either accept a lower increase relative to the recommendations or will stagger the pay hikes over two years, suggesting less consumption stimulus than originally envisaged," analysts including Sonal Varma at Nomura Holdings Inc wrote in a report.

Lower consumption, in turn, would affect the government's revenue projections - which economists such as Dhananjay Sinha at Emkay Global Financial Services Ltd already see as too optimistic.

The income tax increases underpin the boost in India's tax projections, Revenue Secretary Hasmukh Adhia said in an interview on Tuesday. Those funds, along with a greater corporate tax intake, will help India hit its budget deficit target, he said.

"We are very confident," he said.

Even so, concerns exist elsewhere on the revenue side. India consistently undershoots its asset sales target, leading to pressure to boost taxes. While oil's slide helped them painlessly raise excise taxes to bridge the gap this year, that won't be easy to replicate.

Adhia said he doesn't know how much the government allocated for salary increases, saying it's the responsibility of others in the Finance Ministry.

And what if they come asking him for more revenue?

"I have given them my maximum stretch of limit," Adhia said. "Pay hike - how much to give, when to give - is not my baby."

BLOOMBERG