Government raises allowances for its employees, pensioners

NEW DELHI The cabinet on Wednesday approved raising allowances of government employees and pensioners, a move that is expected to boost consumer demand but strain public finances.

The one-off increase, to be effective from July 1, is estimated to cost the federal exchequer 307.4 billion rupees ($ 4.76 billion) per annum, Finance Minister Arun Jaitley told reporters after the cabinet meeting.

While higher allowances will benefit millions of public sector workers, they are expected to fuel demand-driven price pressures, posing an upside risk to the Reserve Bank of India’s inflation projections.