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Implementation of 7th Pay Commission recommendations is expected to boost consumption by Rs 45,110 crore and increase savings by Rs 30,710 crore, India Ratings and Research (Ind-Ra) has said.
On June 29, the Cabinet approved implementation of the pay panel, which has recommended an overall salary hike of 23.5%.
One crore government employees and pensioners will get a 2.5 times hike in basic pay and pensions under the recommendations that will cost the exchequer Rs 1.02 lakh crore annually, which the government said will have a multiplier effect on the economy.
The rating agency said after the sharing of central taxes with the states, the Centre's net tax revenue will rise by Rs 14,100 crore, or 0.09% of GDP, in FY17.
While the employees will get salary arrears from January 1, 2016, allowances will be paid only from today (July 1).
"Thus, the gross impact of 7th Pay Commission is likely to be Rs 94,775 crore. The Central Government will receive income tax on this pay out and collect excise duty on consumption after sharing the increase in income tax and excise duty with States. Thus, the net impact on the Central Government finances is estimated to be Rs 80,641 crore," it said.
Ind-Ra believes the impact of pay revision of State Government employees will be felt only in FY18.
"The Pay Commission award is expected to be less severe on state finances than expected earlier due to a lower arrear pay out. In all likelihood, the impact of a salary revision of the Seventh Central Pay Commission on State Government finances will be Rs 1.58 lakh crore in FY18," it said.
The agency does not see any immediate threat to inflation due to the award.
"Though consumer price inflation may inch up somewhat due to higher prices of services, impact on wholesale price index is likely to be muted due to the counter balance provided by the deflation in commodity prices and the availability of excess capacity in several manufacturing sectors," it said.
