Higher tax revenues in the coming years and strong financials will help most of the state governments meet the enhanced pay bill as and when they implement the Sixth Pay Commission recommendations, the pay panel has said.

"The states' revenues in the coming years are likely to be buoyant especially in the backdrop of uptrend in the tax revenues of the Centre and consequent devolution to states . . . it is observed that most of the states would be in a position to meet the additional expenditure," the panel's report said.

As regards the Fifth Pay Commission, only 20 out of 28 states had adopted the recommendations and the financial implication had then been around Rs 40,000 crore (Rs 400 billion). The Central Pay Commission has assumed that the states will now implement the latest recommendations as well.

As per the Reserve Bank, 19 out of the 28 states are likely to be revenue surplus in 2007-08. Many states have achieved the mandated target of eliminating revenue deficit in the Fiscal Reform and Budgetary Management Act, ahead of the schedule of 2008-09, the report said.

The introduction of value added tax has further contributed to an increase in tax receipts, the report said.

The Working Group on States' Resources for Eleventh Five Year Plan has also observed that there has been an overall improvement in state finances since 2002-03. Working Group's estimates, the aggregate resources for 28 States is estimated to increase from Rs 1,99,384 crore (Rs 1,993.84 billion) in 2007-08 to Rs 3,65,922 crore (Rs 3,659.22 billion) in 2011-12, at current prices.

The commission report, however, said that the actual situation in each state may vary depending upon when the recommendations of the Fifth Central Pay Commission were implemented and the extent to which they were implemented.

The states that did not adopt the Fifth CPC recommendations are Andhra Pradesh, Assam, Himachal Pradesh, Karnataka, Kerala, Meghalaya, Punjab and West Bengal. Some states adopted the Fifth CPC's recommendations with changes.

Of the states expected to follow the Sixth Pay Commission, only Goa and Tamil Nadu are estimated to be in a marginally revenue deficit situation in 2007-08, the Reserve Bank report had said.

The states, which do not reflect a comfortable position as far as the increased expenditure is concerned, can consider deciding on a date of implementation different from that of the Centre, staggering the payment of arrears suitably, generating additional tax and non-tax revenues and cutting down on expenditure. 

• 6th Pay Commission: Complete coverage