7th Pay Commission: Would CPC recommendations give a demand-driven bang to Indian economy?

Thursday, June 30th, 2016 | by


The recommendations of 7th Pay Commission have been approved by the Union Cabinet. Finance Ministry has announced that it would be implemented from July 1, and the arrears would be calculated from January 2016. The total salary hike of government employees would be 23.5 per cent. Their disposable income would increase at least by 15 per cent. The hike in salaries and pensions will put an additional burden on the economy of Rs 1.02 lakh crore. This is nearly 59,000 crores more than the cost incurred while implementing 6th Pay Commission in 2008.

According to Finance Minister Arun Jaitley, the expenditure incurred by the government on CPC recommendations would rejuvenate the Indian economy. “It would come back in form of savings and boost the demand.” This would give a fresh impetus to growth. If one takes cue from the past, the CPC recommendations have created a favourable environment for growth in the nation.

In 2008, the 6th Pay Commission was implemented by the Centre. The growth rate which was staggering at 6.7 per cent, grew by nearly two percentage points in the next two years. The GDP growth rate in 2009-10 and 2010-11 was measured as 8.6 and 8.9 percent respectively.

The nominal growth rate in 2009-10 and 2010-11 grew at 15.1  and 20.2 per cent respectively. The hike in GDP was attributed to the increase in disposable income of the government workforce.

“We strongly believe that consumer spending will be on the rise owing to an increase in income levels by 23.55 per cent. With the rise in disposable income and scaling of e-commerce, the consumer durable industry is expected to grow by 15 per cent in this fiscal,” said Consumer Electronics and Appliances Manufacturers Association (CEAMA) President Manish Sharma.

The recommendations of 7th Pay Commission would impact a total of 47 lakh government employees and 52 lakh pensioners. With disposable incomes increasing of nearly 1 crore households in the nation, government could expect a demand driven bang in the economy. The target of achieving double digit growth could turn into a reality in the upcoming fiscal years.

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