7th Pay Commission: Consumption boost, higher fiscal deficit and inflationary

The recommendations that will benefit 47 lakh central government employees and 52 lakh pensioners, which will impact the Central Budget by Rs 73,650 crore and the Railway Budget by Rs 28,450 crore.

The 7th Pay commission headed by Justice AK Mathur has submitted a proposal to the government for approval of hike in Government employees salary and allowances.

Rating agencies and brokerages today said the proposed 23.6 per cent hike in salaries and pensions of government employees could hurt India’s finances even as the Centre expressed confidence that the fiscal deficit targets will not be breached. The government staff had received a 35 per cent hike on implementation of the Sixth Pay Commission in 2008, a year before the 2009 national elections. Separate pay matrices have been drawn up for civilians, defence personnel and for military nursing service.

A study conducted by the Indian Institute of Management, Ahmedabad, for the commission showed salaries in the private sector are much smaller at the lower level compared with government jobs, and that it is at the higher level where the government falls short in compensating employees.

“The commission recommends a revised pension formulation for civil employees including the Central Armed Police Force and defence personnel who have retired before January 1, 2015”, it said. Under this new pension scheme, the pensioners will be first included in the new Pay Matrix being suggested by the panel on basis of Pay Band and Grade Pay at which they retired, and their pension will be calculated on basis of current pay scale.

The central government constitutes the pay commission every 10 years to revise the pay scale of its employees and often these are adopted by states after a few modifications. All postal dispensaries should be merged with CGHS. We believe that the penetration of two-wheelers is already high with government employees, and thus the benefits may be more limited to a FY17-18F CAGR of around 1.5%-2.5%.

The Commission, however, said the consolidated pay structure was delinked from the pay and allowances structure and the pension drawn by re-employed government retirees is also not deducted from the consolidated pay. The suggested wage increase by the 7th Pay Commission, if accepted, will come into effect from January 1, 2016.

The ceiling of gratuity has been increased from Rs. 10 lakh to Rs. 20 lakh and the ceiling on gratuity will be increased by 25 per cent in situations when the DA will increase by 50 per cent. According to various sources, the Commission is likely to put forward the recommendation of increasing the salaries by 15%.Soon after the submission of the report, Jaitley told reporters here that a secretariat to implement the pay commission recommendations will be set up under the expenditure secretary. 5 lakh per month in addition to other perks. The 5th pay commission saw the consumption of two-wheelers increase by 30% in 1996 over 1995 with sales of automatic scooters growing 54% and motorcycles 50%.