Good News! 7th Pay Commission: Salary hike implementation to push up GDP

New Delhi, April 6: The central government employees are ardently waiting for the implementation of the 7th Pay Commission as a final date has yet not been decided for the same.

RBI in a report on Monday has revealed something which is a bit worrisome as well as brings some good news. The report reveals that implementation of the 7CPC will put an upward pressure of 1-1.5 per cent on inflation, but is expected to boost GDP by around 40 bps (basis points increase) during the current fiscal, RBI said in a report today.

At the same time, the central bank remained confident of meeting its March 2017 retail inflation target of 5 per cent. "Assuming that the government implements the 7th Pay commission recommendations by the second quarter of 2016-17, CPI (Consumer Price Index) inflation could be, on average, 100-150 bps higher than the baseline in 2016-17.

Its impact is expected to persist up to 24 months," Governor Raghuram Rajan said in the a report released along with the monetary policy document.

The report, however, noted that the pay hike will boost GDP by around 40 bps during the current fiscal. The pay hike impact will also jack up food prices, the report said, adding that "food prices could

consequently increase, leading to inflation rising above the baseline by 80-100 bps in 2016-17, even assuming effective government policies relating to food stocks, procurement and minimum support prices".

On achieving the inflation target (6 per cent in January this year), the Governor said inflation has evolved along the projected trajectory and the January 2016 target was met with a marginal undershoot.

"Going forward, CPI inflation is expected to decelerate modestly and remain around 5 per cent in FY17 with small inter-quarter variations," he said, but warned that there are uncertainties surrounding this inflation path emanating from recent unseasonal rains, the likely spatial and temporal distribution of monsoons, the low reservoir levels by historical averages, and the strength of the recent upturn in commodity prices, especially oil.

Persistence of inflation in certain services warrants watching, mainly due to pay hikes, he said, while there will be some offsetting downside pressures stemming from tepid demand in the global economy. But the government's effective supply-side measures keeping a check on food prices, and "the government's commendable commitment to fiscal consolidation" will have a salutary impact on inflation.

On growth, which it has retained at 7.6 percent for this fiscal, the report said, "The uneven recovery in growth in FY16 is likely to strengthen gradually in FY17, assuming normal monsoons, the likely boost to consumption demand from the implementation of the pay commission and OROP, and continuing monetary policy accommodation."

The gross value add growth projection for 2016-17 is retained at 7.6 per cent, "with risks evenly balanced".

The Centre, in January this year, had set up a high-powered panel headed by Cabinet Secretary P K Sinha to process the recommendations of the 7th Pay Commission which will have bearing on the remuneration of 47 lakh central government employees and 52 lakh pensioners.

OneIndia News

(With inputs from agencies)