In the recent Parliamentary discussion, Union Cabinet increased the pay scale of Government officials belonging to all the sectors. Army personnel too were included in the hike as stated in 7th pay commission. Now it comes as the hike in salary might lead to increase in consumer demand/ wants and needs. The expectation regarding a boost in consumer demand entered into the surface as it was predicted by several experts months back.
Also, as per other reports hike in pay scale may also lead to more savings as people coming under the category of a low-income group or middle-income group might save more in comparison to past situation. They may increase their lifestyle thus pausing to hike in consumer needs and wants. The Centre decided to spend as much as Rs. 1.02 lakh crores annually for the increased salary amount as well as pension payments. The 7th pay commission comprises of a thoughtful pay units which are definitely going to help in the long run. On the other hand, the 6th pay commission only had a total amount of Rs. 40,000 crores as its annual spending amount.
The increase in salary will be applicable to more than one crore government employees residing all over the country hence leading to a multiplier effect. The hike in pay scale might help further in flipping the Indian economy by increasing the disposable income henceforth boosting in overall consumption. Also, it would benefit the consumption-oriented sector in a comprehensive manner. The estimated growth in consumer demand got eventually reflected in the fiscal year 2016-17 second quarter in a context of high GDP growth, appreciation in consumer-facing sectors and revenue earnings.
According to Head of Research at ICICI Securities, Pankaj Pandey, For the mid-income category, the basic expenses account for roughly 40% of the salary and hence a rise in income will lead to an incremental discretionary spend. The biggest beneficiaries will be sectors such as housing, private transport, consumer durables and jewellery.
As per recent census by UBS Evidence Lab, they reportedly stated that it gave an anti-consensus view of the urban demand recovery might be slower than the previous terms. Also, 7th pay commission would comprise more savings than consumption hence challenging the noted overall use. It could be unlikely due to the government households. It is being reportedly said that the respective homes might include saving the extra income/money from the estimated hikes henceforth having limited contribution to the consumer demand.
Meanwhile, it’s sought to spend more during the festive season by the government households but out of total only 35% in credited to an increase in the pension hike. Moreover, the intention to spend after the increase in pay scale would be somewhat similar to past year in the next 6 to 12 months or even lower in comparison to non-government employee houses.