Inflation may go up on pay hikes

Brace up for higher inflation and cost of consumer goods. This will be the scenario when thousands of crores will be pumped into the market in the next few months as more than 50 lakh government employees take home hefty pay packets.

The pay hikes, announced by the government costing the exchequer more than Rs 21,000 crore, are not factored in in the Union budget and the government is not yet clear from where it will raise the money to reimburse the increments.

"The Union budget is already in deficit and on top of that the finance minister failed to make a provision for the pay hike," says R K Nahata, a senior chartered accountant and an expert on securities and taxation.

"The expenditure on account of additional payments will have to be met either by increasing taxes or cutting down on subsidies or by deferring some planned and non-planned expenditure," he said, adding that in all such scenarios inflation is bound to go up.

Supporting his arguments, a senior finance ministry official said the non-plan and out-of-budget expenditure is contrary to the measures taken by the RBI to bring down inflation. The apex bank had in the last few months squeezed monetary supply in the market to contain rising prices.

Fears are being expressed of inflation crossing the 14% mark after implementation of the 6th pay commission award. Even as inflation rose to 12.44% on Thursday, the finance ministry said "the rise has come as a disappointment" while refusing to hazard a guess on the future trend.

via Times of India