The recommended Seventh Pay Commission hike will not create a boom
The Seventh Pay Commission award will boost central government wages by 23.5 per cent. So, many analysts have predicted a consumption boom, lifting corporate revenues and profits. Whoa!
Some corporates may gain, but others will lose, so the aggregate effect may be minimal. If consumer goods sector gains while capital goods sector loses, arguably, the net effect on the economy will be negative.
Remember, the government has no money except what it takes from others. It can't raise spending on any one item — like government salaries — except by taking this from somebody else, directly or indirectly. So, the pay commission award will mostly mean robbing Peter to pay Paul. Aggregate demand will not rise.