The salary of government employees is likely to be raised under the 7th Pay Commission, according to an India equity strategist of Credit Suisse – Neelkanth Mishra. The employees are supposed to get a salary hike up to 40%. The recommendations by the Pay Commission would be submitted in October and is expected to be implemented by the next year.
In an interview, he said that each individual would receive 30-40% increase in his salary. He says that it won’t be as big as it was in the previous time. This is because it was driven by arrears but certainly, a significant number of government employees would come into the pay bracket.
About one-third of the middle class in India is employed by the government and as the Commission comes through, there will be a notable improvement in discretionary spending.
The towns where government employees constitute for 50-60% of the middle class, it is estimated that the real estate markets will take off again.
After the Pay Commission submits its recommendations, it will hardly take 3 to 6 months for the Centre and states to declare its implementation.
Indications from Gujarat and Madhya Pradesh have already been received to implement the recommendations of 7th Pay Commission from January 1, 2016.
With the clarity on the pay commission, the consumption would slightly increase. Thus, the 7th Pay Commission could act as a stimulus to the country’s economy.
However, Mr Mishra warned that if 35% of the middle class government employees get a 40% or 30% hike in compensation, then the chances of inflation also rises. Some possible fiscal pressures can emerge.