Decision on implementation of 7th Pay Commission soon

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The Union Cabinet is likely to discuss and take a final call on the recommendation to implement the seventh Central Pay Commission. This follows a report submission by the Committee of Secretaries, which has recommended a little less than 20% average hike as against an earlier media report of a hike of 30%. 

According to Religare Capital Markets Ltd, the implementation of the 7th CPC recommendation should boost consumption, reduce slackness in the economy and step up investment demand. Large consumer discretionary names are likely to be the top gainers in this scenario. 

"However," it says, "With the states and public sector units (PSUs) also set to effect similar hikes (some states like Telangana have already done it); we see a permanent fiscal stimulus of $50 billion over the next two years, with significant multiplier effect on gross domestic product (GDP)."

In January this year, the Indian government had set up the high-powered panel to process the recommendations of the 7th Pay Commission which will have bearing on the remuneration of nearly 50 lakh central government employees and 58 lakh pensioners.

A Committee, headed by Cabinet Secretary PK Sinha, has already vetted the 7th Pay Commission recommendation and its report is being translated into a note for Cabinet. The Commission had recommended 23.55% overall hike in salaries, allowances and pension involving an additional burden of Rs1.02 lakh crore or nearly 0.7% of the GDP, says a report from the Business Standard.

The entry level pay has been recommended to be raised to Rs18,000 per month from current Rs7,000 while the maximum pay, drawn by the Cabinet Secretary, has been fixed at Rs2.5 lakh per month from current Rs90,000. 

While the Budget for 2016-17 fiscal did not provide an explicit provision for implementation of the 7th Pay Commission, the once-in-a-decade pay hike for government employees has been built in as interim allocation for different ministries, the newspaper report says.

According to the Religare, the Budget for FY2016-17 has for only Rs70,000-Rs73,000 crore towards 7th CPC wage bill increases and one rank one pension (OROP). As per 7th CPC recommendations, the total requirement would be around Rs1.02 lakh crore for the two payouts. "If only 20% hike is finally awarded, the FY17 incremental spend on wages and salaries and OROP would still be more than Rs90,000 crore, leaving a fiscal gap of about Rs20,000 crore.

The other possibility is that the allowances payment is deferred to next year. Further, as per media reports, the central government employees may get their first higher salaries from July onwards, to be credited on 1st August, along with a likely arrears of six months' since the higher salary is effective from 1 Jan 2016," it added.