The Union Cabinet today cleared Seventh Pay Commission recommendations (File photo)

Highlights With raise, many senior government officials will now earn more than MPs

But despite being nearly 0.7% of the GDP, hike is the lowest in 70 years

It will cost the government an additional Rs. 1 lakh crore annually

Under the new scheme, the maximum salary for a government servant will be about 2.5 lakhs a month, that's more than double the highest pay of Rs. 90,000 a month.

A big pay hike for over a crore government employees and pensioners was cleared by the cabinet on Wednesday.With this raise, several senior government officials will draw a higher salary than lawmakers in Parliament.Salaries and allowances will rise by at least 23.5 per cent, which had been recommended by the 7th Pay Commission - the panel that decides on government salaries.The hike - the lowest in the last 70 years - is expected to cost the taxpayer an additional Rs 1 lakh crore annually, or nearly 0.7 per cent of the GDP.The move will impact nearly 50 lakh employees and 58 lakh pensioners. The changes will be effective retrospectively from January 1 this year.The raise is built around a 14.27 per cent hike in basic pay.Rs. 73,650 crore of the total payout will come from the general budget, while Rs. 28,450 crore will come from the railways.The previous pay panel had recommended a 20 per cent hike which was eventually doubled when it was implemented in 2008.The move has led to the discontent among the lawmakers who allege disparity with government officers. To address their resentment, the government is also considering a hike in salaries and allowances of lawmakers.The minimum pay recommendation is Rs. 18,000 per month. This too is more than double of the present Rs. 7,000.Sources say Finance Minister Arun Jaitley has made provisions for the payout.Though the government is making an effort to increase revenue by bringing more under the tax net, the payout will reduce its kitty. The Centre also needs about Rs.70,000 crore to meet the One Rank One Pension (OROP) commitment for the armed forces.On the flipside, the huge payout will boost demand at a time the economy is sluggish.While some believe additional cash in the market may fuel an inflationary trend, experts say that the impact of the pay hike may become a turning point for the Prime Minister Narendra Modi's government to trigger demand that drives growth investment and profits.