Pay commission likely to have ripple effect on economy

Whenever the government decides to raise the salaries of its employees, there tends to be a ripple effect in the economy.  It may not be different this time either. The Cabinet is expected to revise the salaries of 4.7 million Central government employees and the pensions of another 5.2 million retired employees, in the coming days.

The total additional outgo, if the recommendations of the Seventh Pay Commission are accepted completely, will be Rs 1.02 lakh crore.

As always, some portion of the additional money could be spent on consumer durable goods that are essential to households. One can expect an increase in consumption and demand for such goods. It could lead to more production, perhaps more capital investments, and better profits. But more importantly, the salary revision of government employees comes as an announcement, raising the expectations and hence prices of almost everything and every service. Right from vegetables to provisions, the prices of everything can go up. In other words, inflation can wipe out the advantage of the additional salary within no time for the employee.

The government cannot do much about this. The best it can do is perhaps implement the pay revision without much delay.

The committee of secretaries have finalised their views on the pay panel's recommendations.  The Cabinet will look at it during the week itself. Since the government has already provisioned the additional amount under various heads in the current year's budget - including Rs 28,000 crore in the railway budget - it will not end up spending more than what it had planned to.

The overall trigger it can provide to the economic growth can be a positive.