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Thursday , April 03, 2008 at 0058 hrs EMIs.”

Jain has a point in targeting government employees in Tier II and III cities. A study last year conducted by global real estate consultant Jones Lang LaSalle found escalating property prices in bigger cities is the main reason for government employees to take interest in smaller metros. He feels that banks would be interested to lend to government employees, as they are safe borrowers. The same study found that only 5% government employees default on payments as compared to 20% from the private sector.

Increased investment and spending also means big business for the banking sector. SK Goel, chairman and managing director, UCO Bank, feels that more disposable income in the hands of government employees means more savings. “Banks and financial institutions will have to devise innovative saving portfolios for their customers to mobilise the additional income and this can be invested further into productive areas, which yield higher returns,” he says.

Goel reasons that in the past few years, households have had the propensity to save and invest more. Despite inflation, saving is around 32% of the GDP and investment is round 34% of the GDP. Over the last few years, household savings have undergone some changes in composition as people are putting more of their money in financial assets than physical assets. Around 50% Indians had put their money in banks (either in savings or fixed deposits), 15% invested in insurance and the rest invested in financial instruments.

“The implementation of the Pay Panel recommendations will not only lead to rise in spending, but also a proportionate increase in savings and investments. It will be a good signal to corporate India as they will find funds for their expansion plans,” says Goel.

Will the anticipated increase in demand for consumer durables lead to any price cut? LG’s V Ramachandran feels that there would not be any price cut in durables as material cost is rising. “The consumer durable industry like washing machines and refrigerators has been facing the high input prices for steel and copper over the last few months,” he reasons.