The 7th Pay Commission recommended a 23.55% increase in pay and allowances for central government employees which will boost the domestic economy. Implementing the recommendations will increase government employee salaries effective January 1, 2016, with a minimum pay of Rs 18,000 per month and maximum of Rs 2.5 lakh. This extra disposable income in the hands of government employees will help revive sectors like real estate, vehicles, and consumer durables by increasing demand. Consultancy firms expect the increased incomes will specifically boost demand in the struggling real estate sector as employees may prefer to buy homes.

1. 7th
Pay Commission Implementation : A timely
booster for real estate secto0072
Beginning of the year 2016 seems to be good for the 4.7 million Central Government employees and
5.5 million pensioners as they are going to get 23.55% increase in pay and allowances as per
recommendations of the 7th
Pay Commission. Since the economy is struggling on private investment
front, this single step is seen as having the potential to boost consumption-driven recovery in the
domestic economy, especially real estate, passenger vehicles and consumer durables,
with purchasing power of households is expected to improve significantly.
Justice A K Mathur headed 7th
Pay Commission presented its report to Finance Minister Arun Jaitley
on Thursday. Recommendations of the Pay Commission will impact 47 lakh serving government
employees and will have a Rs 1.02 lakh crore monetary impact on the exchequer. The hike in
employees’ salaries will be effective from January 1, 2016 and the commission has recommended a
minimum pay of Rs 18,000 per month and a maximum of Rs 2.5 lakh. The extra disposable incomes
in the hands of government employees will not only help revive demand for realty but also improve
utilization of excess capacity.
Real purchase power to improve
The commission report states, “Huge under-utilised capacities and sluggish pick-up in household
demand continue to weigh on manufacturing investments.” Taking this into consideration, rating
agency CRISIL estimates that after paying taxes, if households spend 70 per cent of the incremental
payout, private consumption would rise by 0.4 per cent. It would rise by 0.3 per cent if they spend 50
per cent. This will lead to improvement in real purchasing power of households. Other factors such
as softer lending rates, increased household savings etc will further boost consumption.

2. Realty demand to increase too
As per the reports of consultancy firms such as CRISIL, Bank of America, Merrill Lynch and DBS, the
extra disposable incomes in the hands of government employees will increase the demand for the
ailing real estate sector too. Many employees in big cities will prefer to buy a house and pay EMIs
rather than live in a government accommodation due to the proposed increase in HRA, they said.
According to CRISIL, capacity utilization in real estate is at a five-year low. The cement segment is
witnessing a lower capacity utilization of 71% at present compared to 95% in 2008. Housing
accounts for half of the production of the cement sector. Implementation of the 6th pay
commission’s report in 2008 helped sectors such as cement and automobile to turn around.
Highlights
* 23.55 per cent increase in pay and allowances recommended
* Recommendations to be implemented from January 1, 2016
* Minimum pay fixed at Rs 18,000 per month; maximum pay at Rs 2.25 lakh
* The rate of annual increment retained at 3 per cent
* 24 per cent hike in pensions
* One Rank One Pension proposed for civilian government employees on line of OROP for armed
forces
* Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25 per
cent whenever DA rises by 50 per cent
* Cabinet Secretary to get Rs 2.5 lakh as against Rs 90,000 per month pay band currently
* Financial impact of implementing recommendations will be Rs 1.02 lakh crore – Rs 73,650 crore to
be borne by Central Budget and Rs 28,450 crore by Railway Budget.
* Total impact of Commission’s recommendation to raise the ratio of expenditure on salary and
wages to GDP by 0.65 percentage points to 0.7 per cent
* Military Service Pay, which is a compensation for the various aspects of military service, will be
admissible to the defence forces personnel only
* MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for
nursing officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-
combatants to Rs 3,600 from Rs 1,000
* Short service commissioned officers will be allowed to exit the armed forces at any point in time
between 7 to 10 years of service
* Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing
allowances or in newly proposed allowances.