7th Pay Commission: Govt believes hike in pay would improve economy further

The speedy recovery of the Indian economy is linked to the implementation of the 7th Pay Commission. There has been a spike in demand and consumption following the pay hike which directly benefited the economy.

What is more important is that if the pay is increased further then, the economy could look up further. This is what has prompted the the Union Government to increase the pay and fitment factor beyond the recommendations of the 7th Pay Commission.

The increase in the house rent allowance or HRA has also led to an increase in the house rents in both small and big cities. The other reason for the economy to look up is because several states too implemented the 7th Pay Commission recommendations based on the lines of the centre. It may be noted that the state of Jammu and Kashmir has already started providing the salaries to its employees as per the new recommendations.

"The implementation of HRA as per the recommendation of the 7th Pay Commission for central government employees from July 2017 and the possibility of its implementation at the state level should strengthen urban consumption demand. An offsetting impact on aggregate demand could, however, emerge if state governments restrain or scale down capital spending, keeping in view the objective of fiscal consolidation," the RBI said in its annual report for 2016-17.

The RBI report also said that the 7th Pay Commission was also one of the factors driving India's economic growth under Modi government since its implementation. The RBI had noted in its annual report 2016-17 that private consumption spending alone contributed 2/3rd of the growth of aggregate demand. In the absence of the implementation of 7th Commission recommendations and One-Rank-One-Pension (OROP) for defence personnel, India's growth could have been lower by 2 percentage points.