NEW DELHI (Reuters) - India on Thursday froze inflation-linked increases in salaries and pensions for more than 11 million federal employees and pensioners to generate nearly $10 billion to help combat the coronavirus outbreak, officials said on Thursday.
The decision, effective from Jan. 1, 2020, to July 2021, would also encourage state governments to freeze salaries for employees, after some had already announced wage cuts, analysts said.
Last month, the government announced a 4% rise in allowances for employees and pensioners with effect from January, estimated to have cost 271 billion rupees ($3.56 billion) in the current financial year beginning April.
That rise will not now go ahead.
The federal and state governments usually announce a rise in salaries and pensions twice a year based on inflation on top of one annual increment, a finance ministry official said.
The total savings could be more than 700 billion rupees ($9.19 billion) from an 18-month freeze, he said.
The federal government has nearly 4.8 million employees and 6.5 million pensioners.
Prime Minister Narendra Modi had earlier announced a 30% cut in salaries for federal ministers, the president and members of parliament and froze discretionary spending by lawmakers for two years.
“This is a desperate move that will provide some space to the government to generate funds for a stimulus package for small businesses,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank, partly funded by the finance ministry.
However, the government should have cut the proposed rise in salaries in a staggered manner by putting more burden on high-earning employees, while leaving pensioners out of the scheme, he said.
South Asia’s coronavirus infections have crossed 37,000, with more than half in India, official data showed on Thursday, complicating the task of governments looking to scale back lockdowns that have destroyed the livelihoods of millions.
India is expected to announce in coming days a second stimulus package worth around 1 trillion rupees ($13 billion) with the focus on help for small and medium-sized businesses.
Some employees said they supported the government moves.
“I am relived that I still have a job, while many of my friends in the private sector have lost jobs,” said a government official, asking not to be identified.
Reporting by Manoj Kumar; Editing by Nick Macfie