The Union Cabinet in India accepted the Seventh Pay Commission’s recommendations to increase salaries and pensions for 4.7 million employees and 5.3 million pensioners in the country, which could boost the Indian economy. Demand for housing, automobiles and consumer durables is expected to increase and it may also push up inflation.
The Union cabinet of India approved the pay and pension increase for government workers on June 29, 2016, that will put an additional INR 1.02 trillion in the hands of 10 million central government employees and pensioners during the current fiscal, delivering a potential boost to the consumer economy.
Indian Prime Minister Narendra Modi chaired a meeting where the cabinet accepted the Pay Commission recommendations for increases ranging from 14 pc to 23.5 pc for employees and pensioners.
Pay Commission was set up by Government of India and gives recommendations regarding changes in salary structure of its employees. Since India’s Independence, this is the seventh pay commission that has been set up to review and make recommendations on the work and pay structure of all civil and military divisions of the Government of India.
Unions reject an “unequal increase”
As per the new pay commission, entry-level basic pay will be increased to INR 18,000 per month from INR 7,000 and at the level of top most civil servant, it will rise to INR 0.25 million from INR 90,000.
In support of the central trade unions in India, the confederation of central government employees rejected the unequal increase in pay and decided to go on a strike against the decision.
According to the confederation, the pay hike approved by the cabinet is not acceptable as this the lowest increase in past 17 years and would clearly increase disparity between the minimum and maximum pay.
Central trade unions have also sidelined the government employees and have decided to hold nationwide demonstrations.
“In the prevailing economic conditions, the proposed hike as per the Pay Commission is inadequate. It is not acceptable to us,” M Duraipandian, general secretary, confederation of central government employees and workers, Tamil Nadu, said.
Justifying the increase, finance minister of India, Arun Jaitley said that the salaries of government employees had to rise to respectable levels to attract talent.
A snowball impact on the economy
The raises will be backdated to January 2016, and will have a multiplier effect on the economy. Demand for housing, automobiles and consumer durables is expected to increase and may also push up inflation.
“The implementation of seventh pay commission recommendations will have a snowball impact on the economy”, said Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd.
“We expect growth rate to increase to 15 pc in 2017 from around 10 pc at present. In the past, the consumer appliances division has seen growth rates of 20 pc and we see no reason why it can’t get back to that,” Jamshyd Godrej, chairman, Godrej and Boyce Manufacturing Co. Ltd, said.
With around 10 million central government employees and pensioners expected to earn more from August, home appliances and automobile industry is also expecting an upsurge in sales, especially in small car segment.
“Last year we sold over 200 thousand vehicles to central and state employees and this year we are expecting to sell them 250 thousand plus vehicles,” said a Maruti spokesperson.
“This decision will go a long way in fulfilling the aspirations of government employees and pensioners, and we will offer them an additional INR 7,000 discount under our ‘Pride of India’ campaign on select mass models,” said Puneet Anand, marketing head, Hyundai India.