7th pay commission: Should central government employees worry now?

7th pay commission: The issue of salary hike of central government employees has come in for a mention by the Reserve Bank of India today. In effect, inflation was cited by RBI as a reason to justify interest rate hike. The central bank announced a 25 bps repo rate hike to 6.50% today and this is likely to raise the public's home, auto and personal loan rates and EMIs. The repo rate hike was effected by the RBI to ensure inflation, which is showing signs of breaking out, remains under control. A number of other reason were cited that were boosting inflation or likely to push it up in the near future and while doing so, it also mentioned the 7th pay commission.

RBI in its statement said, "Retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to 5 per cent in June, driven by an uptick in inflation in fuel and in items other than food and fuel even as food inflation remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months." 

It then added, "Adjusting for the estimated impact of the 7th central pay commission’s house rent allowances (HRA), headline inflation increased from 4.5 per cent in May to 4.6 per cent in June. Low inflation continued in cereals, meat, milk, oil, spices and non-alcoholic beverages, and pulses and sugar prices remained in deflation."

RBI concluded its argument on this issue by saying, "Fuel and light group inflation rose sharply, pulled up by liquefied petroleum gas and kerosene. Inflation in firewood and chips ticked up, while electricity inflation remained low. The pass-through of global crude oil prices impacted inflation in domestic petroleum products as well as transport services. Inflation also picked up modestly in respect of education and health."

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So, where does that leave the central government employees demand for a pay hike? They want fitment factor to be hiked to 3.68 times and minimum salary to rise to Rs 26,000. The jury is still out on that one. However, it may be cleared by the government on the big national day that is fast approaching.