Pay commission, Inflation and the Interest rates...Good, Bad and Ugly
Posted by BishopGuy at 9:36 AMPay commission, Inflation and the Interest rates...Good, Bad and Ugly
Yes it is true we may have not thought about or talked as what these three could do together. Many people still dont get what pay commission can do the economy specially one like India. Just to highlight---
What is a Pay Commission?
It is an administrative system/mechanism that the Government of India set up in 1956 to determine the salaries of government employees.The First Pay Commission was established in 1956, and since then, every decade has seen the birth of a commission that decides the wages of government employees for a particular time-frame.
'The Fifth Pay Commission (set up in 1994) recommendations resulted in a Rs 530 billion payout by the government. The next (sixth) pay commission would effectively wind up Indian sovereignty.'-- Arun Shourie, former Union minister for divestment, statistics and programme implementation
It is an administrative system/mechanism that the Government of India set up in 1956 to determine the salaries of government employees.The First Pay Commission was established in 1956, and since then, every decade has seen the birth of a commission that decides the wages of government employees for a particular time-frame.
'The Fifth Pay Commission (set up in 1994) recommendations resulted in a Rs 530 billion payout by the government. The next (sixth) pay commission would effectively wind up Indian sovereignty.'-- Arun Shourie, former Union minister for divestment, statistics and programme implementation
The sixth pay commission is knocking the door as it has been a long time (Probably by April the report will be submitted) Before elections are held could it be implemented? (Also keep in mind the kind of expenditure it will be during the election for the center and 9 states due this year). Now keep in mind it is being speculated that salary of an employee who is earning Rs 30,ooo fixed after the pay commision will be Rs 80,000.(Still less compared to the kind of salaries corporates give). So where will all this money go ? Yep! This is what will lead to good disposable cash in the hands of goverment eployees that they will spend ...Leading to Inflation ?
Now globally as we see the softning interest rates and more such to come the pressure on RBI to cut the same is rising. and now if we have interest rate cut to add to that Inflationary pressure from the spending which will go up eventualy the economic outlook looks shaky. (Don't worry I hope people in RBI are still working...they sure are as there will be hike from them too).
So what we can do.. Buy Gold (Sure buy at $700/ounce..hope we get that price) Or will the rupee still apreciate to cut the Inflation (Less chance as the cause of inflation post pay commission is different)...Or should we just go long on the FMCG and the White goods Shares (More spending more profit for these companies).
Lets see what is in store for us in future.
Any comments on this topic are most welcomed..
Labels: Inflation, Interest rates, Pay commission
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The average hike in housing loan EMI is close to 50% of their EMI which was thought to be affordable both by the Banker and Individual.
The employees are really struggling to pay the EMIs as the inflation corrected DA provided to them in the last 1 1/2 year is only about 15% or so.
In a nutshell, I wish to say that the inflation after implementing the pay commission recommendations, it is not true that the employees are going to spend the money to cause the inflation further going up. Instead they would rather be in a good position to pay for their EMIs which would avoid a bigger problem being faced in United States at present.
I just want to highlight what will happen next.. I am just trying to bring to the notice of others that pay commission is coming. We certainly can't ignore it. It is also not the case that whole amount will go into paying housing loans as I guess many of the govt servants will be staying in Govt quaters. It will leave little room for the RBI to cut interest rate. Also foreign flows will also rise. The example of china is in front of us where inflation is 7.1%
Thanks-
Epic Research