The 7th Pay commission has been given and it’s a jubilant time for 48lacs government service holders. Well how jubilant they are I could find from my facial expression of two of my friend one Mr. Shantanu Chakarvarty working in an instituite and her wife working in another government jobs. Many of my friends are in government jobs too as well as private.  Well I am not so fortunate to work in a government job.  A huge amount of money will come up in the hands of the people and this will spook consumption and other growth activities supporting Indian GDP to grow. 7th pay commission will not be able to save FII’s outflow for the stock market.

A fool’s paradise for the long term. If you remember that in 2008 the same strategy was adopted by UPA govt for 6th pay commission.  Almost all the Government employees received 40% of the pay arrears in 2008 and balance 60% arrears (as promised by Government) has also been credited in Government employees account in 2009. Then after that inflation started increasing and it made middle class segment top suffer. Yes a population of India where only 48 lacs govt and 55 lac pensioners are not the only people living in the society. Inflation scaled up high during that time up and our RBI governor during that time Mr. D Subbarao has to taken many steps after 2 years which was increasing the interest rates as inflation was above 13%. Consumption happened and also the legacy of slow down. It was the mistake of the policy frame decision without taking consideration of the global economy. Inflation which has been a problem for the government has come much below and now the Indian industry should get ready for inflation to get back and down the line next 2 years interest rates will increase again. The situation remains same as the global economy is in problem we need to be cautious in taking any hit on the balance sheet as well as on the fiscal condition.  The economic impact have been worst during that time as the global economy went for tailspin despite of knowing from 2005-06 that US housing and mortgage market is an threat and bubble.
Now just imagine after 2008 bubble if the 6th pay commission should have come then it should not have created problem for the Indian corporate as interest rates should have been low as inflation was down and also should have remained down as people were skeptical to spend. If that time 6th pay commission should have come then inflation shock should have been absorbed and also interest rate hikes should not have been required.

Now those who are thinking that consumption will pick up well investor are more cautious and more aware of the global development. Private sector growth in terms of salary is not so attractive. Companies are more cautious towards hiring and also towards recruitment. Hence consumption spike will not be so aggressive as compared to the estimated numbers. Moving ahead more people will opt for savings which also leads to investments in Gold or either into Fixed Deposits. Global volatility news and problems are known by everyone. Thanks to internet and Smartphone for keeping the educated population of India on alert. Hence investment into equities and that’s also on 8200 levels is matter of debate. We Indian financial advisors of equities never want to lose our clients hence a conservative approach is being adopted and played into the system.  One global bank going for meltdown might create panic hence conservative is the smell in the air.

The real problem happens in the ground level where middle class segment will suffer as price revision towards higher levels is already being decided which will increase the risk for the common citizens. Agri growth is slow at the time being and hence price will increase now with this stimulus coming up will lead to more increase in price. One industry which will get benefited is banking industry as many loans might be closed at an early stage which will keep the investors loan free and hence more opportunity in the long term to buy something.   Export market plays pivotal role. Hence domestic consumption will not be able to replace the export dollar driven earnings of the economy. Yeah the markets are betting high that all of this money will get into the consumption and demand increase and later on when too much expectation in terms of revenue will not match up with the realty reactions will turn opposite. The point is to play safe and within reasonable segment as the global economic condition is not very stable.