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| To save or to spend?
Last Updated: 2008-08-15 15:50:07
Mumbai: Though the governments’ generosity to civil servants through the Pay Commission recommendations will burden the already strained fiscal deficit, economists do not think that the extra money with the government employees will spiral inflation further.
Dharmakirti Joshi, principal economist at Crisil, said that a “temporary” spike in demand for consumer durables could be possible, but increase in money with government employees may not feed the already high inflation.
India’s annual inflation swelled to 12.44% for the week ended August 2 as compared to 12.01%, government data showed on Thursday.
Inflation rate gallops to 12.44%
The finance ministry termed the numbers a major disappointment after nearly stable for four weeks.
The government will pay Rs 11,749 crore or 40% of the arrears due since January 2006 in the current financial year, according to the calculations of the pay commission. The other 60% of the 29,373 crore will be paid in 2009-10, the government said.
Manas Paul, assistant vice president, global banking & markets, HSBC, also doesn’t see a spurt in spending and hence inflation due to the increased cash with government employees.
“I think people will rather save than spend. Also, with prices rising the way they have, people might have to shell out extra money for the same basket of things they were buying earlier,” he said.
Paul expects the government employees to invest the money in safe fixed deposits with banks rather than invest it in markets because of the weak trend in local stock markets.
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