Government’s theory on 7th Pay Commission – More arrears will inject more money into market
New Delhi: Government is likely to delay implementation the Seventh Pay Commission award, which means arrears payments to central government employees to give a big boost to spending in consumer markets.
Arrears payments to the central government employees will help savings more than spending, economists say, but more cash in consumers’ pockets should boost automakers and white goods manufacturers.
Delays to the Sixth Pay Commission’s report meant that rise was backdated to January 2006, with arrears payments giving a big boost to spending that will be repeated this time also.
Sales at carmakers like Maruti Suzuki rose after the Sixth Pay Commission raised pay by close to 40 percent in 2008.
The Seventh Pay Commission head by Justice A K Mathur proposed a 23.55 percent rise in salaries and pensions for about 10 million current and retired central government employees, smaller than past increases as central government faces pressure to curb its fiscal deficit and prices.
Economists and investors are keenly awaiting for the implementation of Seventh Pay Commission’s recommendation, which will test the government’s commitment to budgetary prudence but could boost discretionary consumption across the country.
A pay commission reviews the pay of government employees every 10 years and its recommendations are usually accepted with some modifications.
Finance Minister Arun Jaitley said on November 19 after receiving the Seventh Pay Commission report, the recommendations would add at least Rs 1.02 lakh crore spending in 2016 — the first year of implementation — if they are accepted.
That ratio of expenditure to GDP could rise by 0.65 percentage points in the fiscal year to March 2017, Jaitley added.
UBS analysts estimate that 18 million people and around 7 percent of households will be directly affected by the Seventh Pay Commission’s recommendation, which influences wages of employees of state-owned firms, local bodies and India’s 29 states.
Including pensioners, the number rises to 30 million.