A big pay hike for over a crore government employees and pensioners has been cleared by the cabinet under the 7th Pay Commission
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7th Pay Commission
Under the new scheme, the maximum salary for a government servant will be about 2.5 lakhs a month, that’s more than double the highest pay of Rs. 90,000 a month.
7th Pay Commission Approved
The Cabinet has cleared all recommendations made by the Seventh Pay Commission report that will result in about 23.55 percent overall increase in salaries, allowances and pension for more than 1 crore government staff and pensioners.
The move is expected to give a big boost to the economy as consumption demand in urban areas is likely rise owing to the rising income levels.
7th Pay Commission Recommendations
The Pay Commission recommended 23.55 percent overall increase in salaries, allowances and pension.
This is estimated to put an additional burden of Rs 1.02 lakh crore, or nearly 0.7 percent of the GDP, on the government.
The panel recommended a 14.27 percent increase in basic pay, the lowest in 70 years.
The minimum pay in government is recommended to be set at Rs 18,000 per month. This is more than double the present Rs 7,000.
The maximum pay is set at Rs 2,25,000 per month for apex scale and Rs 2,50,000 per month for cabinet secretary and others at the same pay level (as against the current Rs 90,000 per month).
In order to bring in greater transparency, the report has recommended replacing the present system of pay bands and grade pay with a new pay matrix.
Of the total financial impact of Rs 1,02,100 crore, the increase in pay would be Rs 39,100 crore, increase in allowances Rs 29,300 crore and increase in pension Rs 33,700 crore.
Also, Rs 73,650 crore of the outgo will be borne by the general budget and Rs 28,450 crore by the Railway Budget.
Implications on Economy
The Pay Commission recommendations, once implemented, are expected to boost the consumption demand, and in turn growth.
However, there are other issues. It is going to increase the general expenditure of the government. When these recommendations were made, inflation was moderate. But the actual implementation of these recommendations is coming at a time when inflation is rearing its head again.
So, there are chances that a spike in demand supported by higher pay to the government staff may just push the inflation further up.
It also has to be remembered that crude oil prices that were benign a while back are not so now. The prices for crude are seen around $50 dollar a barrel now and a further increase cannot be ruled out.
However, the only thing that may come to the rescue is a Brexit-induced global demand slowdown that will keep the commodity prices, including that of crude, under check.