According to SBI's Economic Research Department report, the recommendations are estimated to put an additional burden of Rs 1.02 lakh crore or nearly 0.7 per cent of the GDP on government's exchequer, although the provisions made by the Union Budget 2016-17 were at Rs 53,844 crore.
"We believe the government may not able to provide the additional Rs 38,200 crore in fiscal 2016-17, which may be provisioned for the Budget 2017-18. This may impact the fiscal deficit target for 2017-18," the SBI report said.
The Cabinet today cleared all recommendations made by 7th Pay Commission that will result in about 23.55 per cent overall increase in salaries, allowances and pension for more than one crore government employees and pensioners.
Since the 7th Pay Commission report will be effective from January 2016, the government will decide if the arrears for the six months have to be paid in one go or in instalments.
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"No doubt consumption increases with increase in income, nonetheless our study indicates that higher income on account of pay commission translates more into higher household savings than consumption," the report added.