The implementation of the 7th Central Pay Commission (CPC) will boost and harm the Indian economy simultaneously. While more money in the hands of 47 lakh Central government employees and 52 lakh pensioners is bound to boost consumption, inflation is also poised to go up, making life difficult for others.
Adi Godrej, chairman of the diversified Godrej Group, feels that the implementation of the pay panel's proposals, along with a good monsoon and the Goods and Services (GST) Bill, could lift economic growth exponentially.
"I am looking at an acceleration of growth rate by five percent points. With a good monsoon and with a pay panel implementation and it could be much more if the GST is also implemented," he told CNBC-TV18 on Tuesday.
Ironically, the Reserve Bank of India RBI) feels consumption boosted by a salary hike for government employees and pensioners would accelerate inflation, as has been expressed by RBI governor Raghuram Rajan, as late as early this month.
"Nonetheless, there are upside risks (to inflation)...the implementation of the 7th Central Pay Commission awards which will have to be factored into projections as soon as clarity on implementation emerges; the upturn in inflation expectations of households and of corporates; and the stickiness in inflation excluding food and fuel," he said, after the second bi-monthly monetary policy review meeting on June 7.
Retail inflation hit an almost two-year high of 5.76 percent in May, largely driven by a sharp increase in food prices to 7.55 percent.
Sectors that are widely believed to see an increase in demand on implementation of the 7th CPC's proposals include fast moving consumer goods, automobiles and real estate.
On Tuesday, the BSE FMCG index closed with a gain of 1.75 percent, while the BSE Auto index was up 0.29 percent. The BSE Realty index gained 0.66 percent.
Hindustan Unilever gained 3.25 percent to close at Rs. 887.75, while Godrej Consumer Products ended 0.31 percent higher at Rs. 1,532.10.
The BSE Sensex closed 122 points higher at 26,524.
The implementation of the pay panel's recommendations has been estimated to cost the Narendra Modi government about Rs. 1.02 lakh crore this year.