Nov 302015
 

How is the 7th pay commission an opportunity for PM Modi rather than a threat

The recommendations for the 7th pay commission have come at such a time while there has been a real demand slump within our country’s economy. The households are not spending considerable amount of money because the income has not risen to good extent. It cannot be denied that there is a constant focus within the rural households for providing an impetus which were not at all coming due to continuous weak monsoons in the years 2014 and 2015. In this scenario, the recommendations of higher salaries along with the pension plans, comes like the breath of some fresh air.

Won’t hurt the budget

It is a fact that there is much thoughts and discussions regarding, whether the 1.02 lakh crore for the government employees due to the 7th pay commission will burst the budget all over again, but there are chances that it won’t. Specifically in the present scenario of weak global recovery, slow domestic revival consumption, the low commodity prices, excess capacity in the industry and finally with the manageable inflation levels, it is possible that the decision of 1.02 lakh crore payout can be an effective one.

Balanced by returns

While the pay is huge, it is balanced with the reality that a major part shall come back with tax revenue. It is known that the average tax rate for a government employee is 20%. Thus, the income tax brings back one fifth of payouts. Now, let us weave through the returns from the indirect taxes while the common people are spending the balance which jingles within the bank accounts. When this amount shall be spent on the homes, customer durables, necessities for everyday and financial products, the indirect tax attained by government is a good amount.

Possibilities for growth

Alongside, with the improvement of corporate profits, we know that those sectors shall also pay the government more. The share valuations shall rise and this will also make it easier for the government and private sector players to gain more money from market which will help in rebooting the investment cycle. In simple terms, this fortuitous fusion of circumstances, like low commodity prices, low inflation, excess industry capacity, etc, these have made it just the right time in which the 7th pay commission shall do a lot less damage. And in fact, we can say, there is definitely a possibility for restarting the virtuous cycle for growth, investment, profits and consumption.

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