The Union cabinet approved the pay and pension raises that will put an additional Rs. 1.02 trillion in the hands of 10 million central government employees and pensioners in the current fiscal. The policy is likely to deliver a potential boost to the consumer economy.
At a meeting chaired by Prime Minister Narendra Modi, the cabinet accepted the recommendations of the Seventh Pay Commission for pay and pension increases ranging from 14% to 23.5% for 4.7 million employees and 5.3 million pensioners.
This is good news for the government employees and all the new entrants aspiring to get job in the government offices as the salaries are likely to be get doubled. The government said the raises, which will be backdated to January 2016, will have a multiplier effect on the economy. Demand for housing, automobiles and consumer durables is expected to increase, providing a fillip to the economy.
Finance minister Arun Jaitley rightly dubs it as a ‘historic rise’ in emoluments, as the employees will also be benefitted with the arrears.
Economists studying the new recommendations feel that this will be a dent of government treasury. But, will also bring about consumer demands. The immediate challenge will be to figure out the impact of higher consumer spending on inflation. Pricing power has been weak because of excess capacity in Indian industry. But the most recent economic data shows that capacity utilization has begun to inch up while inflation pressures are building.
If one wants to believe that India is one of the biggest growing economies, then the hike in salaries of the government employees will surely give a boost to consumerism.