Thursday, November 19, 2015

7th Pay Commission proposes 23.55% pay hike for government employees:-

New Delhi: The 7th Pay Commission
headed by Justice A.K. Mathur has
proposed a hefty 23.55% increase in
emoluments including pay, allowances
and pension for 4.8 million government
employees and 5.5 million pensioners,
potentially providing a boost to the
ailing consumer economy although it
seems to have missed an opportunity to
reform the hiring process for
government services.
The impact on the finances of the centre
and subsequently on the finances of
state governments may force the
governments to reduce their
development expenses.
The basic salary hike recommended is
16%, while that of housing rent
allowance, other allowances and
pensions are 138.71%, 49.79% and
23.63% respectively.
Significantly, the Pay Commission
passed on the opportunity to provide a
mechanism for formal lateral induction
to the government from the private
sector. The vexed issue of parity of pay
scales for officers from the Indian
Administrative Services (IAS) and other
civil services cadres such as Indian
Revenue Service (IRS) and Indian Police
Service (IPS) remained unchanged due
to differences in opinion within the Pay
The previous United Progressive
Alliance (UPA) government appointed
the Seventh Pay Commission on 28
February 2014 under chairman, Justice
Ashok Kumar Mathur.
The central government constitutes the
pay commission every 10 years to
revise the pay scales of its employees
and these are usually adopted by states
after some modifications.
The finance ministry had earlier
expressed apprehension that the
recommendations of the Seventh Pay
Commission, expected this month,
would significantly increase the revenue
expenditure of the government in the
next financial year, leaving it less
money to spend on building capital
In the medium-term expenditure
framework statement laid before
Parliament on 13 August, the finance
ministry said salary and pension
expenditure is expected to rise by
15.8% and 16%, respectively, in
2016-17, which may leave capital
expenditure room to grow by no more
than 8% during the year.
Total revenue expenditure is expected
to jump 8.1% to Rs.16.6 trillion in
2016-17 against a budgeted growth of
3.1% in 2015-16. During the same
period, growth in capital expenditure is
expected to slow to 8%, at Rs.2.6
trillion, from a budgeted growth of
The finance ministry said award of the
Seventh Pay Commission's
suggestions, with their consequent
impact on government finances, "poses
a risk".
Still, it could be just what is needed to
spur a revival of the consumption
Rakesh Biyani, director at Future Group,
said more cash in the hands of the
middle class will boost consumption.
"Better level of disposable incomes will
help retailers at large," he added. If
hefty arrears are handed down to
employees it "could clearly lead to one-
time high-ticket purchases," he added.
Anuj Puri, chairman and country head at
real estate consultancy Jones Lang
LaSalle India, said the prospect of
increased disposable income in
sufficient magnitude could even
improve the appetite for buying a home
since home-ownership remains one of
the top priority for Indian households.
"There is also a lot of interest for buying
second homes as investments among
those who already have their primary
residences squared away. Increased
take-home salaries will definitely
improve the overall sentiment for the
right-priced residences," he added.
Much like it did in 2008 when it was last
announced, a pay revision will likely
boost sales of consumer appliances and
electronics. Indeed, back then, this
helped stave off, albeit temporarily, the
effects of the global financial sector on
consumer markets.
Nilesh Gupta, managing Director, Vijay
Sales, a consumer electronics and
durables chain in West India, said
additional payouts to government
employees will help increase sales of
automobiles, two wheelers and other
consumer durables. "The festive season
saw growth of 15% over last festive and
now with the arrears payouts to
government employees there will be a
further consumption boost," he added.