The Modi administration agreed to uphold most of the steps proposed by 7th Pay Commission, the government-nominated body which monitors the wages of the civil servants.
India has about 5 million government employees and more than 5.8 million retired officers. The hike will come into effect from January 1, 2016 and the retrospective payments would be dispersed within this year. The last major hike in the wages of the civil servants was in 2008.
“Among the beneficiaries include 47 lakh [4.7 million] government employees and 53 lakh [5.3 million] pensioners. Out of this, there will be 14 lakh [1.4 million] serving defense personnel and 18 lakh pensioners among the defense personnel," Finance Minister Arun Jaitley told reporters at the press conference. However, in terms of percentage, the 24% is the lowest for the last seven decades.
The government aims to inject more synergy into the market by doling out money into the hands of the public so as to boost the spending. This has been one of the key factors of the Modi administration, which faces intense domestic and foreign pressure to push through serious economic reforms.
The markets have rallied behind the government’s announcement when the stocks of consumer products rose sharply through the day.
Under the renewed scheme the minimum salary of government employees has also been raised to 18,000 ($267).
The decision to increase the wages of civil servants is to cost the exchequer more than 1tn Indian Rupees or roughly $15 billion annually. This is equivalent to close to 0.7 GDP of the country. However, the unions have demanded a more liberal hike and reforms from the government.
