New Delhi: The 7th Pay Commission headed by Justice A.K. Mathur has proposed a hefty 23.55% increase in emoluments including pay, allowances and pension for 4.8 million government employees and 5.5 million pensioners, potentially providing a boost to the ailing consumer economy although it seems to have missed an opportunity to reform the hiring process for government services.
The impact on the finances of the centre and subsequently on the finances of state governments may force the governments to reduce their development expenses.
The basic salary hike recommended is 16%, while that of housing rent allowance, other allowances and pensions are 138.71%, 49.79% and 23.63% respectively.
Significantly, the Pay Commission passed on the opportunity to provide a mechanism for formal lateral induction to the government from the private sector. The vexed issue of parity of pay scales for officers from the Indian Administrative Services (IAS) and other civil services cadres such as Indian Revenue Service (IRS) and Indian Police Service (IPS) remained unchanged due to differences in opinion within the Pay Commission.
The previous United Progressive Alliance (UPA) government appointed the Seventh Pay Commission on 28 February 2014 under chairman, Justice Ashok Kumar Mathur.
The central government constitutes the pay commission every 10 years to revise the pay scales of its employees and these are usually adopted by states after some modifications.
The finance ministry had earlier expressed apprehension that the recommendations of the Seventh Pay Commission, expected this month, would significantly increase the revenue expenditure of the government in the next financial year, leaving it less money to spend on building capital assets.
In the medium-term expenditure framework statement laid before Parliament on 13 August, the finance ministry said salary and pension expenditure is expected to rise by 15.8% and 16%, respectively, in 2016-17, which may leave capital expenditure room to grow by no more than 8% during the year.
Total revenue expenditure is expected to jump 8.1% to Rs.16.6 trillion in 2016-17 against a budgeted growth of 3.1% in 2015-16. During the same period, growth in capital expenditure is expected to slow to 8%, at Rs.2.6 trillion, from a budgeted growth of 25.4%.
The finance ministry said award of the Seventh Pay Commission’s suggestions, with their consequent impact on government finances, “poses a risk”.
Still, it could be just what is needed to spur a revival of the consumption economy.
Rakesh Biyani, director at Future Group, said more cash in the hands of the middle class will boost consumption. “Better level of disposable incomes will help retailers at large,” he added. If hefty arrears are handed down to employees it “could clearly lead to one-time high-ticket purchases,” he added.
Anuj Puri, chairman and country head at real estate consultancy Jones Lang LaSalle India, said the prospect of increased disposable income in sufficient magnitude could even improve the appetite for buying a home since home-ownership remains one of the top priority for Indian households.
“There is also a lot of interest for buying second homes as investments among those who already have their primary residences squared away. Increased take-home salaries will definitely improve the overall sentiment for the right-priced residences,” he added.
Much like it did in 2008 when it was last announced, a pay revision will likely boost sales of consumer appliances and electronics. Indeed, back then, this helped stave off, albeit temporarily, the effects of the global financial sector on consumer markets.
Nilesh Gupta, managing Director, Vijay Sales, a consumer electronics and durables chain in West India, said additional payouts to government employees will help increase sales of automobiles, two wheelers and other consumer durables. “The festive season saw growth of 15% over last festive and now with the arrears payouts to government employees there will be a further consumption boost,” he added.
Sapna Agarwal in Mumbai and Suneera Tandon in Bengaluru contributed to this story.
Source Live Mint
