Global financial services major UBS in a report said investors are complacent about any potential change in India's policy framework, especially in the backdrop of 7th Central Pay Commission. The brokerage expects CPC to negatively impact government's fiscal consolidation path and sees states to face bigger impact.
"Impact of CPC on Central government's fiscal is likely 0.4 per cent of GDP, which many investors viewed as not a big deal. The impact is however much bigger on states (over 1.1 per cent of GDP)," said UBS in a report.
UBS added that its baseline scenario is of a staggered, delayed or diluted implementation of CPC, but also said that any delay or dilution to CPC would be a negative surprise for specific sectors and stocks.
The report further noted that consumption boost is not guaranteed even with CPC, neither is it surely sustainable beyond 2-3 quarters.
The brokerage pointed out following five reasons that make macro backdrop in 2016 look very different from that of 2008, the last time India adopted Central Pay Commission (CPC) and expanded fiscally:
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