 "Union Finance Minister Arun Jaitley with Steel & Mines N S Tomar addressing a press conference regarding the Union Cabinet's clearance of recommendations of the 7th Pay Commission, in New Delhi")
The Cabinet on Wednesday cleared recommendations of the Seventh Pay Commission, resulting in a hike of 23.55% in salaries, allowances and pensions of government employees.
Nearly 4.8 million employees and 5.5 million pensioners are set to benefit from these steps. The Centre also announced that the payout will be with effect from January 1, 2016 — implying that the staff will get arrears for six months from January to June.
While the government is set to witness an outgo of Rs 1.02 lakh crore, the payout bonanza is set to bring in cheer to these employees, and, possibly, help in reviving demand in many sectors.
Here are some sectors that can see increased spending push on the back of change in salary structures of government staff.
Automobiles
Car and bike manufacturers are expecting an uptick in demand as government employees and pensioners accounted for 10-15% of total passenger vehicles sold in 2015. However, this increase in demand may take some time as the firms are factoring in the time taken for arrears to reach the consumers’ pockets. Meanwhile, rural spending may also see a push as many beneficiaries also live in the hinterland.
Real estate
Housing sales are set to rise as prices have been lower for a few years on low demand. The increase in salaries may lead to people scouting for buying residential properties or commercial properties. Adding to this, the Cabinet’s approval to a policy to let malls, shops be open 24X7 could also materialize in rise in commercial sales. “It’s a very good decision. Hopefully it will lead to wise investment by the government staff for buying homes,” NAREDCO Chairman Rajeev Talwar said.
Credit growth
The hike in staff’s salaries may result in increase in spending and needs, thereby boosting chances of demand for retail loans. Banks and ratings agencies expect loan demand to increase immediately for consumer durables and vehicles, but for big-ticket items like home loans, the effect could be seen later. In a research note, SBI said that the recommendations are positive for the economy as they will boost consumption as well as savings through a concomitant increase in bank deposits, pension and provident funds.
FMCG and consumer
A boost in salaries is set to transform in an uptick for FMCG and consumer goods. The beneficiary may be inclined to buy more or better quality products from the FMCG space. In terms of consumer goods, air conditioners, washing machines, and other such goods etc. may also see an increase in demand, going forward.
“Greater disposable income will find an outlet into both discretionary categories as well as staples. This will spur not only demand, but also give economic growth a fillip. With the south-west monsoon advancing well across the country, rural consumption, which had taken a hit, will revive. Add to that the Seventh Pay Commission hike, which will impact largely urban areas. The net result is all-round consumption gets a boost,” Harsh Mariwala, chairman, Marico said.
Tourism
As a part of consumption boost, travel and tourism may also see higher demand from government employees.
Higher salaries and a boost in savings, coupled with upcoming festive season round the corner is likely to lead to an increase in travel and tourism-related activities by the staff.
