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While the 7th Pay Commission report projected that the recommendations would translate into 23.55 per cent increase in total pay (amounting into an additional payout of Rs 1,02,100 crore), analysts feel that it will lead to rise in consumption and will thus provide boost to the economy that has witnessed slowdown in consumption in the recent past. The 7th Pay Commmission report of pay scales and pension, if implemented may also be inflationary. Here we take a look at what Kotak, Crisil and HSBC had to say: <br><i>(In photo: Finance Minister Arun Jaitley receiving the report of Seventh Pay Commission from its Chairman Justice A K Mathur in New Delhi on Thursday; PTI photo)</i></br>
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Kotak Institutional Equities: The 7th Pay Commission report, if accepted by the government, should result in a large consumption stimulus for the economy in FY 2017-18. The biggest consumption will come into automobiles (four wheelers), consumer durables and real estate.
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Crisil: Consumption will get boost as states too have implemented wage hikes by a delay of one year and that by perking up household consumption demand, CPC revisions will facilitate faster improvement in capacity utilisation in the fiscal 2017. If supported by normal monsoons, which will lift the sagging rural demand, the private corporate investment cycle could materially lift towards the second half of fiscal 2017. Inflationary pressures are expected to be transitory and benign because of under-utilised capacities.
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HSBC: The government will have to work hard to meet its three objectives for FY17 — lowering fiscal deficit by 0.5 per cent of GDP, maintaining high capex, and increasing salaries. Indeed, both of the other two objectives, i.e. fiscal consolidation and higher capex, are critical for growth recovery and low inflation. If the government still wants to accommodate all the three objectives, it will have to look for new sources of revenues or cut other expenses.
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Fitch Ratings: The government may have to cut expenditure in areas other than those that need capital expenditures because investments will play a key role in stimulating the economy. It should result in large consumption stimulus.
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