Story Of The Week


On November 19, 2015 a great move was taken by the current government for all central government employees and pensioners when it proposed to increase the salary up to 16% in its report of the Seventh Pay Commission. The same was recommended by Justice Mr. Ashok Kumar Mathur (Chairman) along with Dr. Ratin Roy, Shri Vivek Rae and Meena Agarwal and is expected to be in effect from January 1, 2016. The recommendation came as a relief for most government employees and is therefore important to understand:

 What is Pay Commission?

A Pay Commission, appointed by the Government of India (GoI) every decade, gives its recommendations regarding changes in salary structure of government employees. Since 1947, seven Pay Commissions have been set up on a regular basis to review and make recommendations on the work and Pay structure of all civil and military divisions of the GoI. Headquartered in Delhi, the Commission usually take around 18 months from date of its constitution to make its recommendations. The Seventh Pay Commission was incorporated on February 28, 2014 while the report was submitted on November 19, 2015.

The work of Pay Commission is very important as it decides on the salary structure of a large number of employees working under the Central government. Any hike in the salary is beneficial for the employees.

 Recent Developments

According to the recent proposal, the GoI has recommended the minimum salary to be Rs 18,000 per month (as against the earlier Rs 7,730 per month) while the maximum salary can be Rs 2.25 lakh per month (as against the earlier Rs 90,000 per month). Basic salaries of nearly 48 lakh serving central government employees and 55 lakh pensioners will go up by 16 per cent, while their allowances will rise by 63 per cent. As a result, the overall hike in salaries will be 23.55 per cent. This compares with the 35 per cent salary hike central government employees got on implementation of the Sixth Pay Commission in 2008.

Since the basic salary will increase significantly, the subsequent increase in DA may give a rapid rise in the salary. The fitment factor for computing revised basic varies between 2.57 and 2.81.

A huge number of government departments will be benefitted by the recent proposal. These include Indian Railways (Station Master, Ticket Checker, etc.), primary teachers, assistant professors, army personnel, watchman, peon, doctors, head master, engineers, air force, IPS, IRS and IAS officers, librarian, university staff and many more. More than 20 states are expected to implement this proposal.

All this will have a positive impact on the lives of the people working under the Central government whose standard of living will increase with the increase in the household income of the family.

Effect on fiscal deficit

After every Pay Commission, the salary structure is decided according to the financial situation of the country, its financial reserves and the gap in the salary between small workers and higher officials. This time the recommendations have come up as a move to bridge this salary gap.

While the proposed hike in salaries could offer a boost to spending, the cumulative impact of the proposals, which include a recommendation of a virtual one-rank-one-pension scheme (OROP) for civilian Central government employees, entail a total additional outgo of Rs 1.02 lakh crore a year. Of this amount, Rs 74,000 crore will be the additional cost on Union Budget while the remaining Rs 28,000 crore will be on Railway Budget.

Although, Terms of reference had clearly emphasized on keeping the fiscal math in mind before making any recommendations, even with this hike the impact on GDP would be a substantial 0.65 percent though the same was 0.77 percent of GDP in last Commission. An additional Rs 70,000 crore would have to be spent by the exchequer in the first year of the implementation of the Commission’s recommendations.

This implies hefty government expenditure as the government will be using a large sum of money collected from taxes to finance the increase in salaries proposed. Though this comes as a great move for the Central government employees however, people in the private may be affected as the private sector need not comply with the salary structure of the Pay Commission and therefore the private employees may not be able to receive any benefit that the Central government employees will receive.

Apart from this, this may lead to huge pressure on fiscal deficit. The salaries of the Central government employees may double which will have a negative impact of the reserves of the nation that may decrease with this recommendation. The recommendation if accepted will push up the fiscal deficit which in turn will impact the financial position of the country when the government is trying really hard to control deficit and keep it within the target limit of 3.5% of the GDP (for the financial year 2016-17)


It is likely that the government may accept the recommendation in its present form as the finance minister is positive that the government can handle the financial implications of the salary hike and pensions. This means that they will be able to keep the fiscal deficit within its target. Also many economists have accepted that if the oil prices and commodity prices do not change much i.e., they remain at their current level then the government will be in a better position to meet its fiscal deficit target of 3.5% of GDP for the financial year 2016-17. Thus, the Seventh Pay Commission comes a boost for the Central government employees who usually remain upset with lower salary packages offered to them when compared to the private sector employees.






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