Exclusive: Union Cabinet granted Seventh Pay commission recommendations
The Cabinet has cleared all recommendations made by the Seventh Pay
Commission report that will result in about 23.55 percent overall
increase in salaries, allowances and pension for more than 1 crore
government staff and pensioners. The move is expected to give a big
boost to the economy as consumption demand in urban areas is likely rise
owing to the rising income levels.
In January, the government had set up a high-powered panel headed by
Cabinet Secretary PK Sinha to process the recommendations of the 7th Pay
Commission which will have a bearing on the remuneration of nearly 50
lakh central government
The Sinha committee has submitted its report on the recommendations, a PTI report said.
Here's a quick look at the recommendations and the likely implications for the economy:
The recommendations
The Pay Commission recommended 23.55 percent overall increase in
salaries, allowances and pension. This is estimated to put an additional
burden of Rs 1.02 lakh crore, or nearly 0.7 percent of the GDP, on the
government.
The panel recommended a 14.27 percent increase in basic pay, the lowest
in 70 years. (The 6th Pay Commission recommended 20 percent hike. This
was doubled while implementing it in 2008.)
The minimum pay in government is recommended to be set at Rs 18,000 per month. This is more than double the present Rs 7,000.
The maximum pay is set at Rs 2,25,000 per month for apex scale and Rs
2,50,000 per month for cabinet secretary and others at the same pay
level (as against the current Rs 90,000 per month).
In order to bring in greater transparency, the report has recommended
replacing the present system of pay bands and grade pay with a new pay
matrix.
Of the total financial impact of Rs 1,02,100 crore, the increase in pay
would be Rs 39,100 crore, increase in allowances Rs 29,300 crore and
increase in pension Rs 33,700 crore.
Also, Rs 73,650 crore of the outgo will be borne by the general budget and Rs 28,450 crore by the Railway Budget.
Implications for economy
The Pay Commission recommendations, once implemented, are expected to boost the consumption demand, and in turn growth.
As R Jagannathan argued in this article, the recommendations could turn
out to be an opportunity for prime minister Narendra Modi as the "dash
of additional expenditure may be just the prod required for restarting
the virtuous cycle of consumption, investment, growth, profits and all
the related paraphernalia".
However, there are other issues. It is going to increase the general
expenditure of the government. When these recommendations were made,
inflation was moderate. But the actual implementation of these
recommendations is coming at a time when inflation is rearing its head
again. So, there are chances that a spike in demand supported by higher
pay to the government staff may just push the inflation further up.
It also has to be remembered that crude oil prices that were benign a
while back are not so now. The prices for crude are seen around $50
dollar a barrel now and a further increase cannot be ruled out. However,
the only thing that may come to the rescue is a Brexit-induced global
demand slowdown that will keep the commodity prices, including that of
crude, under check.
The Reserve Bank of India, in its last policy statement, had raised
these concerns while saying the surprise rise in April inflation has
rendered uncertainty its future trajectory.
"...There are upside risks – firming international commodity prices,
particularly of crude oil; the implementation of the 7th Central Pay
Commission awards which will have to be factored into projections as
soon as clarity on implementation emerges; the upturn in inflation
expectations of households and of corporates; and the stickiness in
inflation excluding food and fuel," it said.
Above all, a PTI report said citing sources that the secretaries’ panel
may have recommended higher pay increase, with minimum entry level pay
at Rs 23,500 a month and maximum salary of Rs 3.25 lakh.
If the government approves this, the outgo will increase further and so
will the burden on government expenditure. It will also have serious
repercussions on fiscal deficit of the government which has been set at
3.5 percent of GDP.
Past experience
However, Richa Gupta, senior economist, Deloitte India, thinks the net
impact of the implementation of the recommendation is going to be
positive on the economy.
"Overall, there are three aspects: once implemented the recommendations
will result in an increase in urban demand; this may in turn lead to
higher inflation and put a burden on the government spending. But past
experiences tell us that the net impact of pay commission implementation
has always been positive," she said.
Also, it is to be noted that the global economy may continue in a rough
patch due to Brexit. In such a scenario, the only factor that could help
India is the domestic demand and a 23.55 percent compensation hike for
government staff will only help, Gupta added.
Source:
firstpost.com
