Army brass defied Government on pay hike by citing ‘larger interest of the services’

The armed forces have agreed to implement revised pay scales and arrears from October 1 but in a highly controversial move last Friday, the Army top brass, taking a cue from the Navy, cited “the larger interests of the services” to justify their defiance and “delay” in implementing revised salaries.

The Army signal was sent the day Defence Minister A K Antony talked tough with the three Services chiefs and told them in very clear terms to implement the Cabinet decision on the Sixth Pay Commission report.

Top sources confirmed to The Indian Express that via a signal on September 26 — two days after Navy chief Admiral Sureesh Mehta signalled his men — Lt Gen V K Chaturvedi, Director General, Manpower Planning, under the Adjutant General of Army, informed “all ranks up to unit level” that the revised pay scales were delayed. The signal, being kept under wraps, was sent to Headquarters/Commands and Corps of the 1.1 million-strong Army.

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Wake up to Equated Monthly Installment nightmare

The stage is now set for an across-the-board rise in interest rates with the Reserve Bank of India hiking both the cash reserve ratio (CRR) and repo rate by a steep 50 basis points to rein in prices and keep inflationary expectations at bay.

While new borrowers — be it for car, home or personal loans — will find it more expensive, existing borrowers of home loans at floating rates will have to live with extended tenures or higher monthly installments.

Commercial banks are expected to hike interest rates in the coming days to adjust the RBI move that has come four days after inflation hit double digits and touched 11.05 per cent last Friday, most of the rise coming due to higher fuel prices.

Repo rate — the rate at which the RBI lends funds to banks — has gone up from 8 per cent to 8.50 per cent, the highest in six years. CRR — the portion of deposits to be maintained by banks with the RBI — is being increased from 8.25 per cent to 8.75 per cent in two stages, sucking out another Rs 20,000 crore from the banking system.

The RBI steps are aimed at bringing down inflationary expectations by cutting down liquidity and increasing the cost of funds to all — banks and borrowers. The objective clearly is to curb credit and stem money supply that have grown more than the central bank’s indicative projections.

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Reserve Bank of India drains out money, Financial Markets guards food

There are short term relief, possibility of medium term pain and two big questions in RBI's keenly anticipated monetary policy review which was marked by a 0.25 percentage point hike in the cash reserve ratio (CRR) to 8.25%.

CRR determines the amount of money banks have to keep in deposit with RBI and higher CRR means less funds for banks to lend. RBI is arguing there's too much cash sloshing around in the system fuelling inflationary expectations. Inflation as measured by the wholesale price index has been 7% plus in recent weeks, a three year high.

CRR was increased earlier this month and has climbed from 7.5 to 8.25% in a few weeks. The CRR hikes will take around Rs 27,000 crore out of the banking system, forcing banks to rethink lending strategies but it needn't immediately make them raise rates, including those on home loans. That's the short term relief

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