"Since the payment of arrears in cash could result in marginal rise in inflation rate due to spurt in demand for various products, EAC has said that government should consider depositing part of the arrears due to employees in provident fund and pay the remaining amount in a phased manner," official sources said.
The council headed by noted economist and former Reserve Bank governor C Rangarajan, is of the opinion that the payment of arrears in one go could result in further rise in prices, especially of manufactured goods and consumer products.
"The government had paid the arrears in a phased manner while implementing the report of previous Pay Commissions, so it can consider it again," Rangarajan had earlier told PTI.
The council, which advises Prime Minister Manmohan Singh on important economic matters, had earlier said the inflation rate could come down to 5 to 5.5 per cent after about four months following good monsoon and measures taken by the government.
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Inflation, however, has already crossed 8 per cent mark, and the analysts fear that it could soon touch 10 per cent mark if the hike in international crude oil prices is partly passed on to the consumers.