Companies anticipating big windfall from impending Pay Commission payout
October 5, 2009
The big pay day for Central government employees is around the corner and that, along with the ongoing festive season have put banks and durables manufacturers on a high gear. The payment of the second and final instalment of the arrears under the Sixth Pay Commission is expected to set the government coffers back by roughly Rs176 billion. The payout is expected to benefit roughly 5 million government employees and 3.8 million pensioners.
Already, the impending cash injection is creating a flurry of activity from corporate entities and banks alike. In anticipation of the potential demand, several banks have revised interest rates downwards. Industry experts are predicting a windfall for sectors like retail, automobiles and realty. Given the huge amount at disposal, most banks see good business in the retail loans sector.
KK Sharma, executive director, Bank of Rajasthan, said, “Government employees are a huge section that the banks are waiting to tap. People have got arrears and it is a tremendous amount. This amount will get converted somewhere either to meet the marginal requirement of a home or organising a wedding or buying a car or buying white goods because it is a bonanza. It will also improve the repayment power of employees who plan to take loans or have loans outstanding.”
“The payment of arrears in the Sixth Pay Commission would be beneficial for the banks,” said a spokesperson for ICICI Bank.
Not only banks, consumer durable companies are also targeting this huge surplus amount. Hyundai Motors plans to continue with its special discount schemes for State and Central government employees. Last year, in September, when the first instalments of arrears were announced, Hyundai had announced special discounts on specific car models.
"With the approaching Diwali and the flow of funds from the government employees, we expect our sales to go up by 8%-10%," said Nilesh Gupta, managing partner, Vijay Sales, a consumer electronics and durables retail chain in Mumbai.
As was the case with the first instalment of the arrears, government servants would be permitted to deposit their arrears in their general provident fund (GPF) accounts. However, this is not mandatory this time, which leaves a significant potential for discretionary expenditure on part of the beneficiaries.
According to official government estimates, the total arrears are estimated to cost Rs293.70 billion to the government kitty. As per the new pay scales approved by the Union Cabinet under the recommendations of the Sixth Pay Commission, the government employees would receive their dues, applicable from 1 January 2006.
Last year in August, the Union government decided to pay the arrears in two instalments of 40% and 60%. The first instalment of 40% was paid in the last fiscal itself while the remaining arrears would be paid now.
However, the downside is that the resulting inflated wage bill of the government will put additional burden on an already stretched fiscal deficit. Besides, it remains to be seen whether the big demand boost that India Inc. is witnessing will taper off. –Sanket Dhanorkar with Amritha Pillay[email protected]