The 7th Pay Commission has been approved by the cabinet on 29 June 2016, and it will have an enormous impact on the health of the Indian economy. The pay commission award can increase the ratio of PAP to GDP.

The Union Cabinet has accepted all the recommendations made by the Commission.

The Central Government had set up a high-level team led by Cabinet Secretary PK Sinha to look into the recommendation of the commission which will have a significant impact on 50 lakh central government workers and over 58 lakh pensioners.

Economists have a mixed opinion about the implications of the move by the government to the economy. No doubt the recommendation will put a burden on the government burses, and it could lead to higher inflation, but past experiences show that the impact of the pay commission is positive in the economy.

Fallout on Indian Economy

No doubt the recommendation will put a burden on the government purse, and it could lead to higher inflation, but past experiences show that the impact of the pay commission is positive in the economy.

Major economies of the globe are going through rough times, and the effect of Brexit is being felt all across Europe and Asian markets. 23.55 percent pay hike for government staff will only help in increasing domestic demand and cushion the effects of Brexit.

The Commission recommends 23.55 % overall increase in salaries allowances and pension. It will cost the Government Rs 1.02 lakh crore or about 0.7% of the GDP. It envisages a 14.27 % hike in basic pay, which is the lowest in 70 years.

Minimum pay has been fixed as Rs 18,000 per month which is more than double the present Rs 7000. The maximum salary has been set as Rs 2, 50,000 per month as against the current Rs 90,000 per month

On the downside, there are issues like inflation which is rearing its head again. The recommendations were made at a time when inflation was under check. However, a hike in demand augmented by higher pay to the government staff may just push the inflation further up.

International crude oil prices are stable for now, but this cannot be expected for long. Crude is selling at $50 a barrel, and an increase shortly cannot be ruled out. The only thing which could help the Indian economy is a global fall in demand after Brexit, which will keep commodity prices including crude under check.

The only thing which could help the Indian economy is a global fall in demand after Brexit, which will keep commodity prices including crude under check.

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