Clearance given to 7th Pay Commission allowances will provide relief to more than 48 lakh Central government employees, as the Union Cabinet has approved the modifications in the allowances structure which are to be effective from 1st July, 2017. These modifications include increasing the rate of allowances for the Central government employees, especially the Defence, Central Armed Police Forces (CAPFs) and Coast Guard personnel, the staff of Railways, Postal department and nursing staff. It is anticipated that with the additional income in the hands of central employees may give a boost to consumer goods manufacturing coupled with good monsoon season as forecast by the India Meteorological Department (IMD), favourable inflationary scenario and GST implementation leading to reduced inputs costs in the coming times. In a nutshell, with timely disbursements of allowances to employees, it is expected that the demand and consumer spending in the economy will be boosted and likely to witness a huge push in terms of manufacturing activity, creation of jobs, revenue generation and would boost the overall growth sentiments, going ahead.
Going ahead, disbursement of allowances may have an effect on aggregated demand in the economy and will trigger higher consumption. In addition, as household income expands, savings of the employees will expand too. However, the government’s fiscal deficit is likely to be impacted as they have to accommodate the increased salary and pension payments. In overall, pay hike is a kind of stimulus to the economy which will lead to push demand and consumer spending in the coming times.
Further, 7th CPC recommended a raise commensurate with inflation as reflected in the rates of Dearness Allowance(DA) and in this regard the government announced no increase to fully DA indexed allowance like Transport allowance, allowances not indexed to DA were raised by a factor of 2.25 and the partially indexed ones by a factor of 1.5. The quantum of allowances paid as a percentage of pay was rationalized by a factor of 0.8 effective since 1st July 2017.
However, these modifications are likely to have financial implications thereby resulting an increase of Rs. 1448.23 crore per annum over the projections made by the 7th CPC. Earlier, 7th CPC projected the additional financial implication on allowances at Rs. 29,300 crore per annum. In total, combined additional financial implication on account of the 7th CPC recommendations along with the modifications approved by the Cabinet is estimated at Rs 30748.23 crore per annum.
(The author is Chief Economist, PHD Chamber of Commerce & Industry)