The Hindu Business Line : Pay Commission and you

The Pay Commission proposals will leave 40 lakh salary earners with higher disposable income on a sustainable basis. The positive spin-off of all this extra cash may be its effect on demand for goods and services.

Kumar Shankar Roy

You must have noticed that, of late, the government employees are smiling. Who does not like pay hikes? After months of speculation, the Sixth Pay Commission finally submitted its recommendations last Monday. Though the Commission’s recommendations are for the Central Government employees only, it provides guidelines for PSUs and State governments.

All the recommendations, including those leading to fatter pay cheques and bigger emoluments, when implemented, would see a net amount of around Rs 8,000 crore per annum going into Indian hands. With an average hike of 40 per cent in salaries and doubling of most allowances for Central Government employees, suddenly, a lot of money would come into the system. This can be both good and bad.

Why bother

One out of 18. That is the chance that a Business Line reader would be among the 40-lakh-odd government employees who would benefit from the Pay Commission. But that begets the obvious question. Why are the Pay Commission recommendations important to you? Apart from the Rs 12,500 crore implications of the various recommendations made by the Commission, there were some relating to revision of pay scales and pension too, which are expected to be implemented retrospectively. The arrears on the entire set of proposals will entail additional one-time expenditure of approximately Rs 18,060 crore. What happens when a lot of unexpected money comes into the system? More money chasing fewer goods may fuel the already upbeat prices of goods and services. Headline inflation is already hovering close to 6 per cent on the back of strong fuel and agri commodity prices.

But let us not play the party pooper here. Everybody who does good work must be well rewarded and, theoretically, inflation will bite everybody’s hands equally. The Sixth Pay Commission was set up after a gap of 12 years and was long overdue.

Boost for consumption

An important point to note here is that the Pay Commission proposals will leave 40 lakh salary earners with higher disposable income on a sustainable basis. The positive spin-off of all this extra cash could be its effect on the demand for goods and services. For an economy that is growing at around 8-9 per cent, more consumption can be a fillip.

The beneficiary government employees will definitely spend a part of their extra-disposable income. So, consumption-led sectors such as FMCG, consumer durables, automobiles, tourism and even homes and consumer loans may benefit. This may be good news for companies that are a part of these sectors. Their earnings might witness a positive impact, which would boost their profitability and stock prices.

And yes. If these government employees turn out to be the thrifty type and decide to save and not spend the moolah, that is good for the economy too. If the additional money finds its way into savings instruments such as market-linked insurance plans or mutual funds, we can hope for some of this money to find its way into the equity and bond markets.

The stock markets sure could do with some extra liquidity from investors back home, at a time when the FIIs appear to be sitting on the fence, buffeted by global worries.

Last but not the least important effect. If you are not a Central/State government employee, there’s hope for you too. Historically, many private companies have actually revised the pay packets for their employees after implementation of the recommendations of the Pay Commission.

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