7th Pay Commission: Why central government employees, others HRA allowance is in the news now

7th Pay Commission and CPI: Inflation figure is used by the Reserve Bank of India (RBI) to conduct its monetary policy. The target headline inflation for RBI is 4 per cent with a tolerance band of plus or minus 2 per cent. If this is threatened, RBI takes action to ensure inflation does not rise any further as it will hurt everyone concerned. 7th pay commission HRA is one of the factors that carries this threat. (IANS)

How 7th pay commission affects inflation? Fuelled by the HRA effect, housing inflation in CPI rose from 4.7 per cent in June 2017 to 8.2 per cent by December, hovered around that level in 2018 up to July before edging down in August and September as the HRA effect started to wane.  (Agencies)

7th pay commission HRA effect: RBI said, "The current experience is not one off. Such large increases have in past too pushed up inflation significantly. Since the housing index in CPI-IW is adjusted once in every six months, unlike headline CPI, the impact was not gradual but came as steep increases – first in January 2018 and then July when the housing index is reset. Due to higher weight of housing, the impact of HRA revision was much higher in CPI-IW."  (Reuters)

Following the 7th Pay Commission HRA award, the share of housing in CPI-IW inflation rose in January 2018 and gained substantial proportion by July-August 2018. Adjusting for the HRA effects, the July and August print of CPI-IW inflation at 5.6 per cent was markedly lower at 1.7 per cent.  (PTI)

 

RBI has found 7th Pay Commission HRA-inflation link in the past too. Using this approach, it is seen that CPI-IW inflation was pushed up by 200 and 400 basis points following the 5th and 6th CPCs, respectively, RBI said.  (Reuters)

Even as this argument is raging, central government employees are not too focussed on 7th Pay Commission based HRA, instead they are getting increasingly restive about their demands for pay hike not being met as this issue has been dragging for years. The ball is now squarely in Centre's court and it needs to decide what should be done. (PTI)