7th Pay Commission: This is what happened by implementation of report
7th Pay Commission linked house rent allowance (HRA) has raised housing inflation, with a peak impact of about 35 basis points, a study by a RBI. Impact of increase in HRA on headline Consumer Price Index was analysed in by a RBI study.
7th Pay Commission linked HRA started in July 2017 as the basic pay of government employees rose by a factor of 2.57 times. This caused HRA to be revised by 105.6 per cent.
The impact of the 7th pay commission HRA award on headline inflation was expected to peak at 35 bps by December 2017; remain at that level for the next six months, and then gradually dissipate by end-2018.
In case all States (i.e., remaining three-fourth of sample government dwellings) implement HRA increase similar to the 7th pay commission and the impact starts showing up from April 2018, headline inflation is expected to get pushed up further, with the impact peaking at about 100-105 bps and dissipating by end-2019.
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.