The headline indices rallied with auto and retail sector shares gaining after the government approved a long-awaited pay hike for its employees, while sentiment was also boosted by a global relief rally as the immediate impact of Brexit began to fade.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1 per cent to recoup around one-third of Friday's stinging loss after Britain voted to leave the European Union.

The total additional outgo, if the recommendations of the Seventh Pay Commission are accepted completely, will be Rs 1.02 lakh crore.

As always, some portion of the additional money could be spent on consumer durable goods that are essential to households. One can expect an increase in consumption and demand for such goods. It could lead to more production, perhaps more capital investments, and better profits. But more importantly, the salary revision of government employees comes as an announcement, raising the expectations and hence prices of almost everything and every service. Right from vegetables to provisions, the prices of everything can go up. In other words, inflation can wipe out the advantage of the additional salary within no time for the employee.

The government cannot do much about this. The best it can do is perhaps implement the pay revision without much delay.

The committee of secretaries have finalised their views on the pay panel's recommendations.  The Cabinet will look at it during the week itself. Since the government has already provisioned the additional amount under various heads in the current year's budget - including Rs 28,000 crore in the railway budget - it will not end up spending more than what it had planned to.

The overall trigger it can provide to the economic growth can be a positive.

The Income Tax department has created a special zone on its official website to showcase country-wide activities being done by it to popularise the one-time black money compliance window that will complete its first month in operation soon.

A 'dashboard' has been hosted on the official web portal of the department -http://www.incometaxindia.gov.in- and it chronicles all activities initiated by the department, the Central Board of Direct Taxes and the Finance Ministry to make the Income Declaration Scheme (IDS) successful.

The four-month IDS got operational on June 1 and will be in force till September 30. The declarant will have to pay a total of 45 per cent in tax and penalty by November this year and the government has ensured that such entities will have immunity from prosecution.

Under the new tab on the website, the department has also put messages and speeches made by Prime Minister Narendra Modi, Finance Minister Arun Jaitley and other senior officials in connection with the IDS, even as it goes on to chronicle news stories and tally of sessions being held by taxmen across the country to popularise the scheme.

IDS was announced by the government with an aim to flush out black money from the domestic economy.

The IDS will apply to undisclosed income whether in the form of investment in assets or otherwise, pertaining to financial year 2015-16 or earlier.

Declarations under IDS can either be made online on the official e-filing website of the tax department or before various regional Principal Commissioners of I-T department.

Reserve Bank head Raghuram Rajan went with the recommendations of majority of the external members of the monetary policy panel and did not slash the key interest rate early this month.

As per the summary of electronic consultation with the Technical Advisory Committee (TAC) released by RBI on Tuesday, three of the five external members recommended no change in policy rates.

Before contemplating any easing of policy rate, these members wanted to see substantially lower inflation relative to the 2016-17 target of 5 per cent on a durable basis and assess the effect of the monsoon in the next couple of months.

They also wanted further clarity on the US Fed's take on the rates.

Meanwhile, in a sweeping change, the government on Monday enforced a law for setting up a broad-based, six-member committee that is likely to decide on interest rate at the next monetary policy in August, with RBI Governor having a casting vote in case of a tie.

The review will be the last monetary policy of Rajan, who completes his three-year term on September 4.

The summary further said that the other two members recommended a policy repo rate reduction of 25 basis points.

According to them, the shortfall of demand in the economy calls for some stimulus and the effect of the predicted good monsoon would keep food prices under check. They also opined that there is a window of opportunity before a possible the Fed rate hike in mid-June.

One of these two members was of the view that, given the fragmentation and incompleteness of India's financial markets, the repo rate has proved to be a much less effective instrument of monetary policy than in well developed markets like in the US, the summary said.

Consultation with external members of the TAC was held electronically during May 24-30, in the run up to the Second Bi-monthly Monetary Policy Review of the fiscal 2016-17.

On June 7, Rajan kept the key policy rate unchanged citing higher upside risks to 'inflation trajectory' but said the central bank will remain accommodative provided data are supportive.

All the five external members-Shankar Acharya, Arvind Virmani, Errol D'Souza, Ashima Goyal, and Chetan Ghate-sent their feedback through e-mail.

Members noted that global economy recovery is struggling to gain momentum.

On domestic economic growth, the sustained weakness of industrial production continues to be a source of concern, and a drag on overall activity. Low capacity utilization numbers suggest that some sectors of the economy are operating below potential.

Most of the members expressed concern on inflation outlook since food inflation rose by 100 basis points, headline inflation moved up by 60 basis points, and even excluding food, fuel, petrol and diesel, inflation edged up marginally and remained sticky in April.

The Cabinet tomorrow is likely to approve higher increase in basic pay than the nearly 15 per cent recommended by the 7th Pay Commission for over 1 crore government employees and pensioners.

The pay panel had in November last year recommended 14.27 per cent hike in basic pay at junior levels, the lowest in 70 years. The previous 6th Pay Commission had recommended a 20 per cent hike which the government doubled while implementing it in 2008.

After considering the increase proposed in allowances, the hike in remunerations comes to 23.55 per cent.

"Considering the tight fiscal position this year, the government may improve upon the Pay Commission recommendation for basic pay to 18 per cent or at best 20 per cent," a senior official said.

The 7th Pay Commission report will be effective from January 1, he said, adding that the Cabinet will decide if the arrears for the six months have to be paid in one go or in installments.

A secretaries' panel, headed Cabinet Secretary P K Sinha, has already vetted the 7th Pay Commission recommendation and its report is being translated into a note for Cabinet.

"It in most likelihood will come up before the Cabinet tomorrow," the official said.

The government had in January set up the high-powered panel to process the recommendations of the 7th Pay Commission which will have bearing on the remuneration of nearly 50 lakh central government employees and 58 lakh pensioners.

The Commission had recommended 23.55 per cent overall hike in salaries, allowances and pension involving an additional burden of Rs 1.02 lakh crore or nearly 0.7 per cent of the GDP.

The entry level pay has been recommended to be raised to Rs 18,000 per month from current Rs 7,000 while the maximum pay, drawn by the Cabinet Secretary, has been fixed at Rs 2.5 lakh per month from current Rs 90,000.

The secretaries' panel may have recommended raising minimum entry level pay at Rs 23,500 a month and maximum salary of Rs 3.25 lakh.

While the Budget for 2016-17 fiscal did not provide an explicit provision for implementation of the 7th Pay Commission, the government had said the once-in-a-decade pay hike for government employees has been built in as interim allocation for different ministries.

Around Rs 70,000 crore has been provisioned for it, the official said.

A government-appointed panel has selected NS Vishwanathan as a Reserve Bank of India deputy governor, replacing incumbent HR Khan, NDTV Profit TV and ANI television news agency reported on Tuesday without citing sources.

Vishwanathan is currently an executive director at the RBI, overseeing the banking regulation and non-banking department. He would succeed Khan, who will retire on July 3, ANI tweeted.

The key departments under Khan are financial markets, external investments and operations, payment and settlements, information technology, foreign exchange and internal debt management.

The RBI currently has four deputy governors.