The Cabinet on Wednesday approved recommendations of the Seventh Pay Commission on pay and pensions in a decision that will boost consumption by putting extra disposable income in the hands of the central government’s 4.7 million employees and 5.3 million pensioners.
On an average, the hike in basic pay and pension will be 2.5 times the existing structure. However, the existing dearness allowance will merge with the basic pay.
This could revive demand in a struggling economy but could also lead to inflation, prompting Finance Minister Arun Jaitley to call the impact of the decision “a mixed bag”.
The Cabinet, however, deferred a revision in allowances. A committee headed by Finance Secretary Ashok Lavasa will look into recommendations in this regard because there was resentment among employees over suggestions to scrap four allowances. Till then, the existing allowances will continue.
Jaitley said the panel would be given four months to look into the recommendations on allowances and then the government would take a call. There would be no clarity on when the allowances would be revised till the panel studied the recommendations, he said.