New Delhi: Hike in salaries of the government employees will have a positive impact in terms of boosting demand and push economic growth, India Inc said.
Industry chamber CII said the decision would be a great mood elevator for the middle class which would rev up consumer sentiment and in the process provide a big boost to the economy and industry.
"We are confident that the Finance Minister would stick to his fiscal deficit targets for the year inspite of this hike. The bigger question... As in how is this going to be financed... If you have a pay increase that is ahead of productivity growth , then it will end up being inflationary for the economy," CII President Naushad Forbes said.
Ficci too said the pay hike of government employees will give a strong boost to the consumer demand and help uplift the growth of the economy.
"This combined with continued public push to the capital expenditure will help steer the economy to higher growth levels of 8 percent and above, which is much needed amidst the current global headwinds," it said in a statement.
Sharing similar views, Assocham said the Cabinet's nod to implement the 7th Pay Commission recommendations would have a positive impact in the short to medium term.
"Extra money in the hands of a large number of salaried earning people would lead to higher consumption and demand ? driven economic growth," it said.
If monsoon plays out as per the forecast, the increase in both urban and rural consumption should be a great help to sectors like automobile, consumer finance, FMCG and housing, it said.
However, Assocham said the impact of pay hike on overall fiscal situation of the government should not be allowed to deteriorate.