According to market experts, if Seventh Pay Commission recommendations are implemented, it will benefit consumption demand in India.
The Seventh Pay Commission on Thursday recommended a 23.55 per cent rise in salary, allowances and pension along with a virtual one-rank-one-pension for civilians, involving an additional outgo of Rs 1.02 lakh crore a year.
According to market experts, the increase in Central Pay Commission (CPC) will boost consumption demand in India.
A minimum pay of Rs 18,000 per month and a maximum of Rs 2.5 lakh per month has been recommended by the Commission. The recommendations, which are to be implemented from January 1, 2016, will benefit 47 lakh central government employees and 52 lakh pensioners.
Religare in a research note said, “We estimated a hike of 28 per cent in CPC. The implementation of the CPC and state pay commissions would boost India’s consumption demand and GDP growth, benefitting consumer discretionary companies such as Bajaj Auto, Maruti Suzuki, Hero MotoCorp, Bata India, Jubilant FoodWorks, Kajaria Ceramics and Voltas.”
Japanese brokerage firm Nomura said, “Pay hike for central government employees is likely to benefit four-wheeler demand by a FY17-18F CAGR of around 5-7 per cent. 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 1.5 per cent – 2.5 per cent. Maruti Suzuki (MSIL) would likely be a key beneficiary as its products in the entry segment would appeal to these employees. After the Sixth Pay Commission, MSIL’s sales to government employees rose from 4 per cent of volumes in FY08 to 14 per cent in FY11.”
According to market experts, passenger vehicle (PV) demand in India to rise from around 8 per cent in FY16F to 15 per cent in FY17-18F. Nomura believes that visibility is high for strong growth in FY17-18, given the boost from the Seventh Pay Commission.
Financial impact of implementing recommendations in total will be Rs 1.02 lakh crore – Rs 73,650 crore to be borne by Central Budget and Rs 28,450 crore by Railway Budget.