Finance Minister P Chidambaram said the Budget deficit target would be adhered to, despite the implementation of the Pay Commission recommendations.
Eminent economists said pay hike for central government employees is unlikely to have any major impact on inflation but it will certainly have a telling effect on interest rates and fiscal deficit, which has already come under pressure due to rise in various unbudgeted expenditure.
Govt okays 21% pay hike; arrears from 2006
"The pay increase for government employees won't make a great difference (on inflation) as inflation is a supply side problem," said M Govinda Rao, director, National Institute of Public Finance and Policy and member of the Prime Minister's Economic Advisory Council.
However, he added, government's fiscal deficit would go up by around 0.4 per cent of the GDP as Centre would have to garner additional resources to foot higher wage bill.
"If there are no other countervailing measures in terms of tax collection etc then both revenue and fiscal deficit will go up be around 0.4 per cent of GDP", Rao added.
Rajesh Shukla, senior fellow of National Council of Applied Economic Research said, "Inflation has been caused by external factors and pay hike will not result in any significant pressure on prices."
Image: Airport Authority of India (AAI) employees shout slogans | Photograph: Prakash Singh/AFP/Getty Images
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