- 7th CPC has impacted CPI by nearly 35 basis points at its peak, said RBI
- The revised HRA structure under the 7th CPC, came into place in July 2017
- HRA stood revised by 105.6%, that is, by more than double pre-CPC level
The Goods and Services Tax (GST) as well as protracted issues of corporate and bank balance sheet problems pushed India's economic growth downward in 2017 but a gradual recovery is expected and the country's economy is forecast to grow at 7.2 per cent in 2018, according to a UN report.
A research paper, released in April this year, by RBI's monetary policy department had said that the increase in house rent allowance (HRA) for central government employees under the 7th central pay commission (CPC), has impacted the CPI or consumer inflation by nearly 35 basis points at its peak. The revised HRA structure, under the 7th CPC, came into place in July 2017.
"Ex-post analysis of CPI shows that the 7th CPC"s HRA increase pushed up headline inflation prints gradually from July 2017, with a peak impact of about 35 basis points (bps)," said the research paper titled 'Impact of Increase in House Rent Allowance on CPI Inflation'.
It said while some states have implemented similar revision in pay and allowances for their employees, the impact is not showing up in the data due to reasons like administrative delays between announcement and actual disbursals, and partial disbursals by states.
As per the recommendation of the 7th CPC, the basic pay of government employees rose by a factor of 2.57.
Accordingly, HRA stood revised by 105.6 per cent, that is, by more than double the pre-CPC level.
Housing is a major component in CPI with a weight of 10.07 per cent. Within housing, the weight of house rent is 9.51 per cent and that of other miscellaneous housing services 0.56 per cent.
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