7th Pay Commission: Here is what the RBI has told the government

Does the implementation of the 7th Pay Commission aid inflation. The Reserve Bank of India has once again outlined that the implementation of the pay panel's recommendation would lead to inflation.

Financial risks

The RBI says, "At the current juncture, global political and financial risks materialising into imported inflation and the disbursement of allowances under the 7th central pay commission's award are upside risks. The date of implementation of the latter is still not announced and as such, it is not factored into the baseline projections."wever Central Government employees waiting for an update on their higher allowances, pay hike, arrears and HRA need not worry as the Union Cabinet can and will take an independent decision.

Several issues

On inflation the the, RBI said, "The abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections."

Not the first time

Not the first time

This is not the first time RBI has raised concern regarding 7th Pay Commission impact on inflation. In the last monetary policy, on April 6, RBI Governor Urjit Patel had warned saying that in case the increase in house rent allowance as recommended by the 7th CPC is awarded, it will push up the baseline trajectory by an estimated 100-150 basis points over a period of 12-18 months, with this initial statistical impact on the CPIfollowed up by second-order effects.

Retreat of inflation

Retreat of inflation

The RBI also said that the abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections.

Absent policy

Absent policy

The RBI further said that if the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5 % in the first half of the year and 3.5-4.5 % in the second half.

Inflation has fallen

Inflation has fallen

Noting that inflation has fallen below 4% only since November 2016, the MPC remains focused on its commitment to keeping headline inflation close to 4% on a durable basis keeping in mind the output gap, the Reserve Bank of India also said on the 7th Pay Commission.


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