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Fitch Says Pay Hike Could Hurt Economy


Fitch Says Pay Hike Could Hurt Economy

Bengaluru, India | Red Newswire | Nov 20, 2015 Last Updated at 05:16 PM IST.

Recently a hike of 23.6% in pensions and salaries was proposed for 10 million Indian government employees, which according toFitch Ratings could disturb the economy. This could hurt the finances and further weaken India’s sovereign credit profile.

The proposal was made by a government panel this Thursday and is smaller than the earlier increases. The reduction in the hike size is probably because of new delhi struggling to maintain the fiscal deficit. It will add $15.43 billion (1.02 trillion rupees) to the federal expenditure by 2016. If accepted, 2016 would be its first year of implementation.

Fitch reports also added that the government’s goal of 3.5% fiscal deficit could also be challenged by this pay hike, unless the government increases revenues  or reduces the spendings.

Fitch said, “The planned wage increase is sufficient to add substantive challenges to achieving the planned medium-term consolidation targets.” The credit agency further added, “Delaying an improvement in India’s fiscal position would underscore a longstanding weakness for the sovereign credit profile.”

India has a fitch rating of ‘BBB-minus’. Fitch said among the similar rated countries, India has the highest debt burden.

Source: Reuters

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