Shares of nine auto companies rose 0.66% to 3.67% at 10:35 IST on BSE, with the stocks extending previous sessions' gains triggered by the Union Cabinet approving 7th Pay Commission's recommendations.
The announcement by the Government was made during market hours yesterday, 29 June 2016.Meanwhile, the BSE Sensex was up 243.34 points, or 0.91%, to 26,983.73.
Hero MotoCorp (up 2.15%), Tata Motors (up 2.94%), Maruti Suzuki (India) (up 0.82%), Escorts (up 0.88%), TVS Motor Company (up 3.67%), Bajaj Auto (up 1.56%), Mahindra & Mahindra (up 0.8%), Ashok Leyland (up 0.66%) and Eicher Motors (up 0.72%) edged higher.
Investors are betting that increase in salaries and payment of arrears to government employees due to the implementation of the 7th Pay Commission recommendations will boost consumer spending and lift demand for two-wheelers and passenger vehicles.
The BSE Auto index had outperformed the market over the past 30 days till 29 June 2016, rising 4.06% compared with Sensex's 0.33% gains. The index had also outperformed the market in past one quarter, advancing 9.84% as against Sensex's 7.39% rise.
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi approved the implementation of the recommendations of 7th Central Pay Commission (CPC) on pay and pensionary benefits. It will come into effect from 1 January 2016.
The Cabinet has decided that arrears of pay and pensionary benefits will be paid during the current financial year ending 31 March 2017 (FY 2017) itself, unlike in the past when parts of arrears were paid in the next financial year. The recommendations will benefit over 1 crore employees. This includes over 47 lakh central government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the defence forces. As estimated by the 7th CPC, the additional financial impact on account of implementation of all its recommendations in FY 2017 will be Rs 1.02 lakh crore. There will be an additional implication of Rs 12133 crore on account of payments of arrears of pay and pension for two months of FY 2016.
The present system of Pay Bands and Grade Pay has been dispensed with and a new Pay Matrix as recommended by the Commission has been approved. The status of the employee, hitherto determined by grade pay, will now be determined by the level in the Pay Matrix. Separate Pay Matrices have been drawn up for Civilians, Defence Personnel and for Military Nursing Service. The principle and rationale behind these matrices are the same.
All existing levels have been subsumed in the new structure; no new levels have been introduced nor has any level been dispensed with. Index of Rationalisation has been approved for arriving at minimum pay in each Level of the Pay Matrix depending upon the increasing role, responsibility and accountability at each step in the hierarchy. The minimum pay has been increased from Rs 7000 to Rs 18000 per month. Starting salary of a newly recruited employee at lowest level will now be Rs 18000 whereas for a freshly recruited Class I officer, it will be Rs 56100.
For the purpose of revision of pay and pension, a fitment factor of 2.57 will be applied across all Levels in the Pay Matrices. Rate of increment has been retained at 3%. This will benefit the employees in future on account of higher basic pay as the annual increments that they earn in future will be 2.57 times than at present.
The Cabinet approved further improvements in the Defence Pay Matrix by enhancing Index of Rationalisation for Level 13A (Brigadier) and providing for additional stages in Level 12A (Lieutenant Colonel), 13 (Colonel) and 13A (Brigadier) in order to bring parity with Combined Armed Police Forces (CAPF) counterparts at the maximum of the respective Levels. Gratuity ceiling enhanced from Rs 10 to 20 lakh. The ceiling on gratuity will increase by 25% whenever dearness allowance (DA) rises by 50%. Rates of Military Service Pay revised from Rs 1000, 2000, 4200 & 6000 to 3600, 5200, 10800 & 15500 respectively for various categories of Defence Forces personnel.
The Cabinet also approved the recommendation of the Commission to enhance the ceiling of House Building Advance from Rs 7.50 lakh to 25 lakh. The Cabinet also decided not to accept the steep hike in monthly contribution towards Central Government Employees Group Insurance Scheme (CGEGIS) recommended by the Commission. The existing rates of monthly contribution will continue. This will increase the take home salary of employees at lower levels by Rs 1470.
The general recommendations of the Commission on pension and related benefits have been approved by the Cabinet. Both the options recommended by the Commission as regards pension revision have been accepted subject to feasibility of their implementation. The Cabinet also decided to constitute two separate Committees to suggest measures for streamlining the implementation of National Pension System (NPS) and to look into anomalies likely to arise out of implementation of the Commission's Report.
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