India in public sector pay deal

Those working in government offices can look forward to a pay deal

India's cabinet has approved higher wages for government workers after the recommendations of a pay panel report earlier this year.

The higher wages for 5 million workers will cost 221bn rupees ($5.2bn;£2.77bn) in 2008/09.

It comes as Indian inflation soared faster than expected in early August to a 13-year high of 12.44%.

"The cabinet has approved the pay commission report," law minister Hansraj Bhardwaj said.

Deficit target

Analysts have said extra borrowing may be needed to pay for the wage increases, placing pressure on public finances.

But finance minister Palaniappan Chidambaram said India would meet its fiscal deficit target for 2008/09 despite the pay increase.

The wage hike had been taken into account when preparing the budget for the financial year starting in April 2008, he said.

The pay rises are to be backdated to January 2006, with the government paying back money owed in two stages - 40% during 2008/09, and 60% in 2009/10.

Minimum pay

About 157bn rupees of the 221bn rupees total will come from the federal budget, and the remainder from the railways, which has its own budget.

The minimum basic monthly pay for a government worker will be increased to 7,000 rupees and the total monthly package, including allowances, will be increased to a minimum 10,000 of rupees per month.

Annual inflation moved to 12.44% for the week ending 2 August, from 12.01% for the week ended 26 July, according to the Wholesale Price Index.

The inflation rise exceeded analysts' expectations of around 12.2%.