British Bank Stanchart said in a report that India’s economic growth in FY ’17 will likely be driven by consumption growth due to the impending pay revision of government employees.
“We expect consumption to drive India’s GDP growth in Fiscal Year 2017 (which starts on April 1, 2016), taking over from investment,” said Saurav Anand and Anubhuti Sahay of South Asia Research at Stanchart in their report. Impending pay rises for public-sector employees, to be implemented from FY17, are likely to partly redirect the government’s limited fiscal resources from investment to recurrent spending that will boost consumption. “We expect the fiscal burden to be borne mostly by the federal government, as it will implement the pay revisions in the first year (FY17), when it also aims to reduce the fiscal deficit by 0.4 percentage points to 3.5% of GDP,” they added.
The amount and details of the pay revisions – which are implemented once a decade – are expected to be announced by the end of 2015 reports Economic Times.
Consumers in urban areas are likely to benefit the most from the pay rises, low inflation, and the lagged impact of lower interest rates particularly for autos and white goods in FY17. Rural demand may improve if the monsoon rains return to normal after three seasons of unfavorable precipitation.
