NewDelhi: Abig pay hike for over a crore government employees and pensioners was clearedby the cabinet on Wednesday. With this raise, several senior government officials will draw a higher salarythan lawmakers in Parliament. Salaries and allowances will rise by at least 23.5 per cent, which had beenrecommended by the 7th Pay Commission - the panel that decides on governmentsalaries.
The hike - the lowest in the last 70 years - is expected to cost the taxpayeran additional Rs. 1 lakh crore annually, or nearly 0.7per cent of the GDP.
Themove will impact nearly 50 lakh employees and 58 lakh pensioners. The changeswill be effective retrospectively from January 1 this year.
The raise is built around a 14.27 per cent hike in basic pay.
Rs. 73,650 crore of the total payout will come fromthe general budget, while Rs. 28,450 crore will comefrom the railways.
The previous pay panel had recommended a 20 per cent hike which was eventuallydoubled when it was implemented in 2008.
Under the new scheme, the maximum salary for agovernment servant will be about 2.5 lakhs a month, that's more than double thehighest pay of Rs. 90,000 a month.
The move has led to the discontent among the lawmakers who allege disparitywith government officers. To address their resentment, the government is alsoconsidering a hike in salaries and allowances of lawmakers.
The minimum pay recommendation is Rs. 18,000 permonth. This too is more than double of the present Rs.7,000.
Sources say Finance Minister Arun Jaitley has made provisions for the payout.
Though the government is making an effort to increase revenue by bringing moreunder the tax net, the payout will reduce its kitty. The Centre also needsabout Rs.70,000 crore to meet the One Rank One Pension(OROP) commitment for the armed forces.
On the flipside, the huge payout will boost demand at a time the economy issluggish.
While some believe additional cash in the market may fuel an inflationarytrend, experts say that the impact of the pay hike may become a turning pointfor the Prime Minister Narendra Modi's government to trigger demand that drivesgrowth investment and profits.