Pay hike to fuel growth; modest risk to inflation

Jaswinder Singh Baidwan

Akhran da mureed
Staff member
Implementation of the much- awaited pay hike for over 1 crore Central Government employees and pensioners will be a positive for the economy as it will push up consumption, although its impact on inflation is likely to be moderate, economists say.
The Cabinet, headed by PM Narendra Modi, today cleared the recommendations of the 7th Pay Commission according to which the overall hike in salary and allowance of Central Government employees and pensioners comes to 23.5 per cent.
Experts said the higher payout would boost consumption demand, especially for consumer durables and services. This domestic demand push would help India clock 7.9 per cent growth rate in the current fiscal, up from 7.6 per cent in 2015-16.
“Implementation of the 7th Pay Commission recommendations will have a positive impact on demand for consumer durables and services. Overall, it is positive for growth with modest risk on inflation,” ICRA Senior Economist Aditi Nayar said.
Besides, at a time of global headwinds arising out of Britain’s exit from the European Union, the increased pay out to over 1 crore government employees and pensioners would boost GDP growth to 7.9 per cent in 2016-17, up from 7.6 per cent a year ago. “The implementation of the 7th Pay Commission comes at a time when globally we are facing downside risk due to Brexit. The domestic demand push as well as good monsoon will drive growth. We estimate GDP at 7.9 per cent in 2016-17. Arrears pay out will also mildly support consumption demand,” Crisil chief economist DK Joshi said.
The 7th Pay Commission had recommended 23.55 per cent overall hike in salaries, allowances and pension involving an additional burden of Rs 1.02 lakh crore or nearly 0.7 per cent of the GDP. The recommendation would be effective from January 1, 2016. “The decline in global crude and commodity prices as well as good monsoon would act as an offsetting factor for any pressure on prices as a result of 7th Pay Commission,” Joshi said.
 
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