The Reserve Bank of India maintained that the hike in the salaries of the government employees will put burden on the finance of the union government.

The government has cleared the recommendations of the sixth pay commission recently that cause increase in the salaries of the employees by 21 per cent.

RBI said that the subsidies and farmer loan waiver have also pressurized the state finance. The central bank indicted that it would continue to tighten the monetary policy despite some ease in the inflation rate.

The central bank also blamed 'higher oil subsidies, increase in fertilizer subsidy and increase in the prices of raw materials' to affect the economic growth. RBI has, recently, released a report on the Currency and Finance for 2006-08. The ever increasing prices of food and oil are also affecting the growth story of India.

However, it has projected the growth of eight percent for the current fiscal year. The Reserve Bank is continuously hiking the Cash Reserve Ratio (CRR) and reserve repo rate to ease the inflationary burden.

It also advised the banks to develop a special mechanism to cover the sudden economic risks.