Govt payout acts as stimulus, sparks consumption

By Aditya Kalra

NEW DELHI (Reuters) - Life has changed for Deepika Chatterjee. She plans to buy a house, travel in a chauffeur-driven car and no longer hesitates before buying expensive airline tickets.

Chatterjee is among millions of government employees in India who are enjoying a substantial hike in pay after the government last year approved a larger-than-expected wage hike.

"I am thinking this is the best time to buy a house, I never thought I will have this much of money," said Chatterjee, 51, an associate professor at Delhi University, after her monthly salary jumped by more than half after the wage revision.

Chatterjee and 4.5 million other government workers will receive about 180 billion rupees in backpay in October, the second instalment of a wage increase implemented last year.

The government implemented the recommendations of a pay panel in 2008, doling out about 290 billion rupees in arrears, as well as a monthly pay hike, a move analysts say may act as a small stimulus package, boosting demand and spending.

The payout, which will also benefit 3.8 million pensioners, has been staggered over a one-year period.

"If you accept this as one of the fiscal stimulus packages, I would say this is a prudent measure under current situation," said NR Bhanumurthy, an economist with New Delhi-based National Institute of Public Finance and Policy. "This is a right time to do that".

The pay rise came at a time when the private sector in India was buckling under the effect of the global financial meltdown.