The 7th Pay Commission report is having an impact on inflation. The other reasons for this impact on inflation expected to go up in December are the rising oil prices, GST effect etc.
The other reason about the role of the commission is that the housing rent allowance has been adjusted upward by the Union Government. In the previous monetary policy review that was held in October, the RBI had projected the inflation to be in the range of 4.2%-4.6% for October-March (second half) period of this fiscal.
The RBI said, "On the whole, inflation is estimated in the range 4.3%- 4.7% in third quarter and fourth quarter of this year, including the HRA effect of up to 35 basis points (0.35%), with risks evenly balanced."
HRA increases by various state governments may push up housing inflation further in 2018. The staggered impact of HRA increases by various state governments may push up housing inflation further in 2018. The recent rise in international crude oil prices may sustain, especially on account of the OPEC's decision to maintain production cuts through next year, the RBI further said.
Inflation climbed up
A report in the Finance Express said that in November, inflation climbed up even breaching the Reserve Bank of India (RBI) of 4% target. Firming crude oil prices in the global market is likely to cast its shadow on retail inflation, which has begun to move northwards after hitting a low of 1.46% in June, and may prompt the RBI to hold interest rates in 2018, the report also said.
The government on the other hand said implementation of new pay scales recommended by the 7th Pay Commission is estimated to put an additional burden of Rs 1.02 lakh cr, or 0.7 per cent of GDP, on the exchequer in 2016-17.
DA has no impact on 7th Pay Commission
The Rajya Sabha was informed that the implementation of the 7th Pay Commission report however, would be after approval of the Cabinet on completion of screening of suggestions by a high-level panel of secretaries.
In a written reply, Minister of State for Finance Jayant Sinha also said that the announcement of Dearness Allowance has no impact on the recommendations of the Pay Commission. He further said that the burden on pay head would increase by Rs 39,100 crore to about Rs 2.83 lakh crore in the current fiscal. Without the 7th Pay Commission recommendations, the outgo would have been Rs 2.44 lakh crore, he also said.