The Reserve Bank of India [Get Quote] on Thursday warned that finances of the central government may come under pressure this fiscal due to implementation of recommendations of the Sixth Pay Commission, higher oil prices, fertilizer subsidies and farm-loan waiver.

"The finances of the central government may come under pressure during 2008-09 on account of implementation of the Sixth Pay Commission award including payment of arrears, higher oil subsidies, increase in fertiliser subsidy due to a sharp rise in the price of raw materials and fertiliser in the international market," the RBI said in its report on Currency and Finance 2006-08.

The expenditure on account of debt waiver to farmers would also add to pressure on the government, the RBI said. Although this fiscal's Budget has met the Fiscal

• Pay panel: All about the revised pay scales
• The 6th Pay Commission: Complete Coverage

Responsibility and Budget Management (FRBM) target of annual reduction of 0.5 per cent of GDP in the revenue deficit, it was still placed at 1 per cent of GDP due to increased expenditure on health and education.

On state finances, the RBI report said all states except Sikkim and West Bengal had enacted the Fiscal Responsibility Legislation (FRL) till March-end. All states have also implemented value-added tax (VAT) in lieu of sales tax, it said.

Budgetary allocations for productive sectors such as agriculture and water conservation, infrastructure, power, urban development and housing sectors are proposed to be raised this fiscal in a number of states, it said.

• Pay panel: All about the revised pay scales
• The 6th Pay Commission: Complete Coverage