The Union Cabinet on Wednesday approved the 7th Pay Commission recommendation, which will benefit one crore government employees and pensioners who will get a 2.5 times hike in basic pay and pensions. The move will cost the exchequer annually Rs 1.02 lakh crore.
With the new pay scales entry-level basic pay will change from Rs 7,000 per month to Rs 18,000, while at the highest level i.e. Secretary, it would go up from Rs 90,000 to Rs 2.5 lakh. For Class 1 officers, the starting salary will be Rs 56,100.
The revised salaries of central government employees are likely to be paid from 1 July 2016. While the employees will get salary arrears from 1 January 2016, allowances will be paid only from 1 July 2016.
We take a look at what 5 experts have to say about the government’s move and how it will affect the markets, maths and tax:
Devendra Pant, Chief Economist, India Ratings & Research
The union cabinet cleared the Seventh Central Pay Commission (7CPC) recommendations, which boost consumption by Rs 451.1bn (0.30% of GDP) and increase savings by Rs 307.1bn (0.20% of GDP), says India Ratings and Research (Ind-Ra). Ind-Ra believes that after the sharing of central taxes with the state governments, the central government’s net tax revenue will increase by Rs 141bn (0.09% of GDP) in FY17.
Sonal Varma, Nomura & Neha Saraf, Nomura
The pay and pension hike will boost discretionary demand (auto, consumer durables), providing an impetus to growth. We expect GDP (market prices) growth to recover to 7.3% in 2016 from 7.2% in 2015, with the recovery being largely consumption-led.
Nirdosh Gaur, MD and CEO of Discount Broking Firm, Moneypalm
Implementation of the Seventh Pay Commission recommendations will have a positive impact on stock markets and also on consumption growth. We are expecting that urban demand will spur after implementation and this will increase demand for discretionary products. Our favourite sectors to watch are automobile, FMCG, retail and real estate. Stocks such as Hero MotoCorp, Kansai Nerolac, PC Jewellers, Mahindra & Mahindra and DLF will benefit with the implementation of the commission.
Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd
Just ahead of Monsoon, the 7th Pay commission will have a snowball impact in the economy. This is a well expected positive move, this will help achieve GDP growth target quicker. The auto, consumer durables and FMCG sector would see much higher demand. The small concern could be that this may push inflation a bit higher.
A Didar Singh, Secretary General, FICCI
The pay hike of nearly Rs 1 lakh crore for government employees will give a strong boost to the consumer demand and help uplift the growth of the economy. This combined with continued public push to the capital expenditure will help steer the economy to higher growth levels of 8 per cent and above, which is much needed amidst the current global headwinds.