Panel recommends nearly 25 pct hike in 7th Pay Commission

By Clara Ferreira-Marques

MUMBAI (Reuters) - An Indian government panel has proposed a 23.55 percent rise in salaries and pensions for about 10 million current and former government employees, smaller than past increases as New Delhi faces pressure to curb its fiscal deficit and prices.

Economists and investors have been keenly awaiting the 7th Pay Commission's recommendation, which will test the government's commitment to budgetary prudence but could boost discretionary consumption across the country.

A commission reviews the pay of government employees every 10 years and its recommendations are usually accepted with some modifications.

Finance Minister Arun Jaitley said the recommendations would add at least 1.02 trillion rupees ($15.43 billion) to federal spending in 2016 -- the first year of implementation -- if they are accepted. That ratio of expenditure to GDP could rise by 0.65 percentage points in the fiscal year to March 2017, Jaitley said.

UBS analysts estimate that 18 million people and around 7 percent of households will be directly affected by the pay commission's recommendation, which influences wages of employees of state-owned firms, local bodies and India's 29 states.

Including pensioners, the number rises to 30 million.

Past hikes have helped savings more than spending, economists say, but more cash in consumers' pockets should boost automakers and white goods manufacturers. Sales at carmakers like Maruti Suzuki rose after the 6th Pay Commission raised wages by close to 40 percent in 2008.

Then, India's fiscal circumstances were less austere, with growing tax revenues, a buoyant economy and a fiscal deficit of 2.5 percent.

Delays to the 6th Pay Commission's report meant that rise was backdated to January 2006, with arrears payments giving a big boost to spending that will not be repeated this time.

($1 = 66.1008 Indian rupees)

(Additional reporting by Nidhi Verma in NEW DELHI; Editing by Catherine Evans)