Finance Minister Arun Jaitley is likely to announce a hike in minimum pay and fitment factor behind the recommendations of the 7th Pay Commission or 7th CPC before the Lok Sabha elections 2019. The 7th Pay Commission had recommended a 14.27 percent hike in basic pay, raising minimum pay from Rs 7,000 to Rs 18,000 month with fitment factor 2.57 times. However, the central government employees have been asking to raise minimum pay to Rs 26,000 and fitment factor 3.68 times. The government is going to raise minimum pay to Rs 21,000 from Rs 18,000 and fitment factor to 3.00 times from 2.57 times that were recommended by the 7th Pay Commission.
While there is uncertainty plenty, RBI has stepped in with some data that may be of big concern for government employees. An increase in house rent allowance (HRA) following recommendations of the 7th Pay Commission has reportedly pushed up inflation significantly, with a peak impact of about 35 basis points. Central government employees are expecting some good news regarding salary hikes beyond the recommendations of the panel report.
The 7th Pay Commission result was seen across most states and Union Territories. The RBI paper shows that, so far, the actual impact of the HRA increase on headline consumer price index has turned out to be related to the assessment provided by the RBI in the Fifth Bi-monthly Monetary Policy Statement in December 2017. The revised HRA structure under the 7th Pay Commission came into continuation in July 2017. According to the order of the 7th CPC, the basic pay of government employees will be rose by a factor of 2.57. Accordingly, HRA stood revised by 105.6 percent, i.e., by more than double the pre-CPC level. However, the HRA was increased only for the central government employees in July 2017.
In six months, all the Central government houses in the sample were covered, and each house listed in such an increase. Taking this into account, the impact of the 7th Pay Commission HRA award on headline inflation was expected ex-ante to peak at 35 bps by December 2017; remain at that level for the next six months, and then gradually dissipate by end-2018.