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Our Bureau

New Delhi, Aug. 14 Will the Government’s pay hike bonanza to its over 4.5 million Central Government employees translate into higher consumer spending on goods, durables, cars or travel? While the industry is hopeful of increased spending, experts voice their reservations about any substantial rise in demand. Besides, the impact of the pay-out on the Government’s finances is projected to be milder than it was during the Fifth Pay Commission.

Responding to Thursday’s Cabinet decision, Mr Ravinder Zutshi, Deputy Managing Director, Samsung India, said: “Despite rising prices, consumer durables have shown a healthy growth. We hope the Sixth Pay Commission and the upcoming festive season will help register a growth”.

Mr C. Ravishankar, Manager, Strategic and Commercial Intelligence, Transaction Services, KPMG, concurred with the view. He said, “The Pay Commission revisions and the overall growth in salaries are a macro factor that remains positive for consumer household surplus. In the short term, growth rates may be hit, but longer term prospects for the industry remain good. Penetration of several durables remains low, aspirations remain high, and household surpluses are likely to grow, despite negative blips.”

Taking a different position, Mr Arvind K. Singhal, Chairman, Technopak Advisors, felt that the Rs 15,000-crore odd that will come into the hands of Government employees is a small sum and would not make a statistical difference to the Rs 16,00,000-crore retail consumption market. Besides, he said, that money in the hands of people in the current inflationary scenario generally goes into repaying loans or savings.

Meanwhile, economists predict that the adverse impact of the pay hike on Government finances is not likely to be as bad as when the previous Fifth Pay Commission recommendations were implemented in 1997.

“I do not think you can compare the two situations. Government revenues were much more strained then and the economic situation was weak. Today revenues and growth conditions are much better and the economy can adjust.

“But there’s a downside because of all subsidies… the combined effect may not be very comfortable and it could add to inflation in the long run if subsidy issues stay unresolved,” Dr Saumitra Chaudhuri, Economic Advisor with ICRA Ltd and a Member of the Economic Advisory Council to the Prime Minister, said.

Reacting on the same lines, Mr Subir Gokarn, Chief Economist, Standard & Poor’s Asia-Pacific, said: “ It had to be done, there was no choice in the matter regardless of the impact… the economy will make the adjustment, though there is concern over oil and fertilizer bonds. During the last Pay Commission, the circumstances were very different.”

Incidentally, the World Bank had held the Fifth Pay Commission as the “single largest adverse shock” to India’s strained public finances. In the aftermath of the pay hikes, 13 States were left with no money to pay salaries. The wage Bill of the Central and the State Governments had shot up by as much as 40 per cent, with GDP growth falling from 7.5 per cent in 1996-97 to 4.3 per cent in 1997-98.

However, this time round, the consensus amongst economists is that the Central Government is in a position to foot the bill as long as it tightens its belt on the overall subsidy front.

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