Seventh Pay Commission May Cause Inflation

The Sen Times has published an article regarding general apprehension for inflation that may be caused by Seventh Central Pay Commission set up by Government for Central Government Employees.

It is anticipated prices of goods could rise, causing inflation, as soon as the Seventh Pay Commission announces the revised pay-scale for central government employees and the states government employees would have to bear the brunt.

Accordingly, the implementation of the Seventh Pay Commission’s recommendations will ravage the finances of the central and state governments.

Inflation has been whacking Indian budgets over the last few years. What has hurt the common man even more is food inflation. Food prices have risen at a much faster pace than overall prices.

The deficient monsoon rainfall and drought conditions in several parts of the country have accentuated the pressure on food prices, pushing  up the overall inflation rate.

The Reserve Bank of India (RBI) cut interest rates by 50 basis points on Tuesday in a bid to kickstart economic growth, following a sharp drop in inflation.

The inflation has stayed high in the past few years—the Consumer Price Index (Industrial Workers) has averaged over 9% in the past eight years, which means cost of living has gone up significantly and hence necessitates higher compensation for workers also.

The dearness allowance of government staff has already touched 119%, which along with the rise in other allowances have more than doubled salaries since 2006.

It is expected the Seventh Pay Commission to recommend 3 times hike in salaries across various grades from Sixth Pay Commission levels apart from a further rationalization of government employees.

There is a perception that government employees’ higher salaries boost spending on housing, automobiles and consumer electronics.

Initial estimates suggest the seventh pay commission could add Rs 1,00,619 crore to the central government’s wage bill.

The central government pay and allowances amount to 1 per cent of GDP today. State wages amount to another 4 per cent, making for a total of 5 per cent of GDP.

The medium-term expenditure framework recently presented to Parliament by Finance Minister Jaitley, which looks at an increase in pay of 16 per cent for 2016-17 consequent to the Seventh Pay Commission award.

That would amount to an increase of 0.8 per cent of GDP. This is a one-off impact.

However, the Seventh Pay Commission is ready with its recommendations on revising emoluments for nearly 50 lakh central government employees and 55 lakh pensioners, and will soon submit report to the Finance Ministry.

Headed by Justice Ashok Kumar Mathur, the Commission was appointed in February 2014 and its recommendations are scheduled to take effect from January 1, 2016.

The government constitutes the Pay Commission almost every 10 years to revise the pay scale of its employees and often states also implement the panel’s recommendations after some modifications.

As part of the exercise, the Commission holds discussions with various stakeholders, including organisations, federations, groups representing civil employees as well as defence services.

Meena Agarwal is the secretary of the Commission. Other members are Vivek Rae, a retired IAS officer of 1978 batch and Rathin Roy, an economist.

The Sixth Pay Commission was implemented with effect from January 1, 2006, the fifth from January 1, 1996 and the fourth from January 1, 1986.

Source: TST