The strongest effect of the 7th pay commission will be on the aggregate demand in the Indian economy, which is likely to witness a huge push in terms of creation of jobs and revenue generation.
In order to keep the exchequer healthy to fund implementation of the seventh pay commission recommendations, the Finance Ministry has asked government departments to avoid last minute spending rush in the final quarter of the fiscal.
The Finance Ministry has categorically told them to ensure that they don't exceed their respective budget allocations. It said that the departments would not get additional grants as the government had to bear the burden of the implementation of the seventh pay commission.
Incidentally, the Finance Ministry made an exception for the MNREGA expenditure while it conveyed its message to other ministries during a discussion on the revised estimates for the current fiscal year.
SO, WHAT WILL CHANGE WITH 7TH PAY COMMISSION
The full implementation of the 7th pay commission's recommendations will bring an average 23.5 per cent raise in their income for about one crore central government employees and pensioners.
The implementation of the CPC recommendations will bring more cash- digital or physical- in the hands of salaried people, who will trigger higher consumption, in turn.
More money in large number of family is likely to push demand for cars and houses, as many bankers expect. This will revive the slightly sluggish lending sector.
With more money in hand is expected to push higher consumer demand for durable goods, which will give impetus to industrial sector leading to creation of more jobs.
The past experience of implementation of pay commission's recommendations suggests that automobile sector and companies dealing in consumer durables and FMCGs get huge push and are the primary beneficiaries.
With more expenditure by the large number of salaried people and their dependents will lead to higher revenue for the government. More money also means increased savings, which have been the biggest strength of the middle class economy of the country.
More demand for consumer goods will also push inflation but given the fact that the prices have been under the check for better part of the past two years, this new trend should not trouble the citizenry and worry the government.
In anticipation of the positive impact of the seventh pay commission, the RBI has been asking the banks to lower the interest rates. So, auto, car and home loans may become cheaper once the government announces to give the allowances to its 47 lakh employees and about 53 lakh pensioners once the model code conduct is lifted after the assembly elections in five states.
A combination of higher discretionary income and lower interest rates is good for real estate sector, which has been gasping for fresh lease of breath.
Higher consumption and demand are likely to create more jobs in the country in various sectors- particularly manufacturing. Clearly, the strongest effect of the 7th pay commission will be on the aggregate demand in the Indian economy.
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