An employee counts Indian rupee currency notes inside a private money exchange office in New Delhi July 5, 2013
An employee counts Indian rupee currency notes inside a private money exchange office in New Delhi July 5, 2013Reuters file

The 7th Central Pay Commission (CPC) recommendations implemented by the Central government will entail a payment of Rs. 34,600 crore towards salary arrears for seven months and August wages to employees, according to a ratings agency.

The hike in the salary component as recommended by the 7th Central Pay Commission (CPC) was accepted with retrospective effect from January 1, 2016.

"The combined outgo for the center on account of arrears for January to July and payments for August will total to Rs. 346 bn (Rs. 34,600 crore)," India Ratings and Research Pvt Ltd. (Ind-Ra) said in a statement on Wednesday.

On the flip side, this is likely to result in a "go slow" approach by the Narendra Modi government, according to the agency.

"The government is likely to go slow on spending as it gears up to meet lumpy payments (other than regular payments)," Ind-Ra said in its statement.

However, the impact won't be much on the government's finances. "The outgo due to a hike in salaries and pensions, in line with the Seventh Central Pay Commission's (7CPC) recommendations, is unlikely to cause significant systemic liquidity disruptions," the ratings agency said. 

The salary hike announced by the Modi government in accordance with the recommendations of the 7th CPC covers about 1 crore employees and pensioners. There are about 53 lakh pensioners and 47 lakh Central government employees, of which 14 lakh employees and 18 lakh pensioners are from the defence forces.

A decision on increasing allowances will be taken approximately by November, according to an official statement by the government in June.

"Given the significant changes in the existing provisions for Allowances which may have wide ranging implications, the Cabinet decided to constitute a Committee headed by Finance Secretary for further examination of the recommendations of 7th CPC on Allowances. The Committee will complete its work in a time bound manner and submit its reports within a period of 4 months. Till a final decision, all existing Allowances will continue to be paid at the existing rates," the June 29 statement said.

The pay commission had recommended abolition of 51 allowances and subsuming 37 others after examining 196 allowances.