Is RBI's Monetary Policy is concerned with 7th CPC House
Rent Allowances hike?
Central
Government Employees are eagerly waiting for hike in
allowances as per
7th Pay Commission. The 7th Pay Commission recommended the
rates at
which HRA is to be paid to 24 per cent, 16 per cent and 8 per
cent
respectively for Class X, Y and Z cities and towns
respectively of new
Basic pay (pay in the pay band plus grade pay multiplying by
the fitment
factor of 2.57). The existing rates of HRA for these cities
and towns
were 30 per cent, 20 per cent and 10 per cent of Basic pay
(pay in the
pay band plus grade pay) respectively.
Yesterday RBI has issued
its First Bi-monthly Monetary Policy Statement for 2017-18.
Paramnews
has analyzed this report in view of early approval of
allowances
committee. This report has stated that the Seventh Pay
Commission
recommendations will not upset fiscal maths as additional
expenditures
will be offset by either surplus revenues or expenditure cuts.
Accordingly, a view has been expressed, this time too RBI
seems neutral
on prohibiting to hike the allowances specially House Rent
Allowances.
HERE ARE TWO QUESTIONS TO BE POINTED OUT
- Can we Say RBI plays the vital role in
implementing 7th CPC House Rent Allowances?
- Whether Govt. had taken RBI’s report to delay the
hike in HRA as per 7th CPC Recommendation?
To
Find the above we should have a recap on RBI Monetary Policy
Report
From April 2016 to First Bi-monthly Monetary Policy Statement
for
2017-18.
As per RBI Projected Monetary Policy Report April 2016:-
The implementation of the CPC's recommendations could
impact inflation and growth through:
a) the direct impact of the proposed increase in the house
rent allowance (HRA);
b) indirect effects operating through consumption to aggregate
demand; and
c) inflation expectations channel
According
to RBI The higher HRA would have a direct and immediate
impact on
headline CPI through an increase in housing inflation. As RBI
assumed a
rate of increase in the HRA as proposed by the 7th CPC is
implemented
from early 2017-18 onwards and the State Governments implement
a similar
order of increase with a lag of one quarter, CPI inflation
could be
100-150 bps higher than the baseline for 2017-18. We can
better
understand in the below given chart by RBI.
The
implementation of the 7th Central Pay Commission (CPC) awards
can have a
significant bearing on the inflation trajectory through both
direct and
indirect channels shown by RBI in below given chart.
RBI
also assumed that the impact of the pay awards is likely to
be seen
over a period of two years. Compared to the 6th CPC awards,
increase in
the housing index would be more quick and continuous and
indirect
effects are likely to be smaller. Moreover, outgo of arrears
under 7th
CPC awards would be substantially lower but HRA rates would
automatically increase when the dearness allowance of the
employees
crosses threshold levels3.
In the broad sense, as we see the above
points projected by the RBI, we can easily say that due to
the reason
that the Govt has stopped giving 7th CPC House Rent Allowances
and
constituted the Committee on Allowances under Finance
Secretary Ashok
Lavasa in June last year after the government implemented the
recommendation of the 7th Pay Commission.
The special committee on
allowances recommended by the 7th Pay Commission is expected
to
recommend more than double House Rent Allowance (HRA). The
committee on
allowances recommended by the 7th Pay Commission is likely to
propose a
increases ranging between 106 per cent and 122 per cent in HRA
for all
categories of employees. The government was also expected to
start
giving HRA by October 2016, including all allowances, once
again a
report from the RBI ?
RBI governor Urjit Patel announced in the
last bimonthly monetary policy on December 7, it seems that
higher
allowances, if at all, will not come before March 2017 i.e.
the next
financial year. As the RBI Governor said that disbursement of
salaries
and arrears under 7th Pay Commission award has not been
disruptive to
inflation outcomes, he added that the extension of two months
given to
the Ministry of Finance to receive the notification on higher
allowances
under the Pay Commission's award, could push it's fuller
effect into
the next financial year, rather than this financial year.
As many
as 14 meeting have been held between the Committee on
Allowances and the
central government employees' unions so far on higher
allowances under
the 7th Pay Commission, but no consensus could be reached.
Various
Media Reports are claiming that the report will be approved
by cabinet
after the ongoing Budget session of Parliament is over on
April 12.
The
finance secretary-led panel, which is giving final touches to
the
reworked allowances based on the 7th pay panel's
recommendations, will
hold its final meeting shortly, according to various
sources.
The
panel met for over three hours on Wednesday to deliberate on
the
subject. "Decisions are broadly taken on allowances pending a
final
review. But these will be announced only after current Budget
session
ends on April 12 to avoid any controversy," another source
said.
But the questions remain here:-
- What "Decisions" will be broadly taken on House Rent
Allowances?
- When "These" will be announced ?
- Whether the Govt. is waiting for "RBI" nod for good
time? If yes, then when does the good time appear ?
or
- Is it pending due to "MCD Election" ? After 05 may
2017.
- Is Govt waiting for Budget session of Parliament is
over ? After April 12 2017.
- Is Govt waiting for RBI Second Bi-monthly Monetary
Policy Statement for 2017-18 ? After June 07, 2017.
