PM Approves Constitution of the 8th Pay Commission for Central Government Employees

1. The Union government approved the establishment of the 8th Pay Commission on January 16, 2025, just days ahead of the Delhi Assembly elections.

What is a Pay Commission?

Function of Pay Commission	Reviews and recommends changes to salary structures for government employees.
Oversight	Comes under the Department of Expenditure (Ministry of Finance).
Constitution Frequency	Constituted every 10 years.
First Pay Commission	Set up in 1946.
Total Pay Commissions	7 Pay Commissions have been formed since Independence.
Most Recent Pay Commission	The 7th Pay Commission was set up in 2014.
Implementation of Recommendations	7th Pay Commission recommendations were implemented in 2016.
Government's Discretion	The government can choose to accept or reject the recommendations. Several states and their agencies often follow recommendations of the commission. These commissions often take factors such as inflation, burden to the exchequer and prevailing economic conditions into account.

Key Points of 8th Pay Commission for Central Government Employees

Target Group

1. The Pay Commission will impact approximately 50 lakh serving employees and 65 lakh pensioners of the Union government, including retired defence personnel.
2. In Delhi, about 4 lakh employees of the Union government will be affected.

Purpose of the Pay Commission

1. The primary objective of the commission is to revise the salaries, pensions, and allowances of central government employees.
2. It is also expected to provide wage settlement frameworks for public sector undertakings (PSUs) and state governments, ensuring that similar wage revisions can be implemented across different government bodies.

Key Decisions and Information

1. Approval by Prime Minister: The decision to form the Eighth Pay Commission was taken by Prime Minister Narendra Modi, who made the announcement following a Cabinet meeting on January 16, 2025.

2. Appointment of Commission Members:

   1. The Chairperson and 2 members of the 8th Pay Commission will be appointed soon.
   2. As per past practices, a retired Supreme Court judge typically heads the commission.
   3. The 7th Pay Commission, which concluded in 2016, was headed by Justice A.K. Mathur.

3. History of Pay Commissions:

   1. Since 1947, the Indian government has formed 7 Pay Commissions, with the Seventh Pay Commission implemented in 2016.
   2. The 7th Pay Commission's term officially ends in 2026.
   3. However, the decision to establish the Eighth Pay Commission in 2025 ensures that there is enough time for its recommendations to be reviewed before the term of the 7th Commission concludes.

4. Cost of Implementation of Seventh Pay Commission:

   1. The Seventh Pay Commission led to an expenditure of ₹1 lakh crore in its first year (2016-17) for the government to implement the new pay scales.

Expected Outcomes of the Eighth Pay Commission

1. Wage and Pension Revisions:

   1. Once the recommendations are accepted, they will serve as the basis for wage settlement in public sector undertakings and state government revisions.
   2. This is expected to have a significant positive impact on the disposable income of government employees and pensioners, leading to increased consumption and supporting economic growth.

2. Consultation Process:

   1. The commission will engage in extensive consultations with Union and State governments, as well as other stakeholders, before finalizing its recommendations.
   2. This will help ensure the fair representation of all sectors and government bodies in the final report.

3. Economic Implications:

   1. The new pay and pension structure will likely increase the revenue expenditure of the government, as witnessed with the Seventh Pay Commission.
   2. In 2016-17, following the implementation of the Seventh Pay Commission, the growth in the Government of India’s revenue expenditure rose by 9.9%, compared to 4.8% the previous year.
   3. D.K. Srivastava, Policy Advisor for Ernst & Young, warned that a similar increase in revenue expenditure in 2026-27 could affect the available fiscal space for the government’s capital expenditure.

Trade Unions' Reactions

1. Welcoming the Decision:

   1. Various trade unions have welcomed the announcement, noting that the 8th Pay Commission had been a long-standing demand of central government employees.
   2. General Secretary of the All India Defence Employees Federation, said that employees had been demanding the formation of the commission for over a year.

2. Concerns Over "Living Wage":

   1. Unions have urged the Pay Commission to review the concept of "living wage".
   2. Currently, the minimum wage is decided based on a formula designed by Wallace Ruddell Aykroyd, a nutritionist, approved in the 15th Indian Labour Conference of 1957.

The Aykroyd Formula: The formula was designed to ensure that workers could meet basic needs such as food, shelter, and clothing. It was based on the concept of a nutrition-based wage. Basic Needs: The formula takes into account the cost of food, clothing, and housing for a worker and their family. Food: The diet prescribed by Aykroyd was based on 2,400 calories per day for an average adult male worker. The calculation was based on a nutritious diet that was deemed sufficient to maintain health and well-being. Clothing: The allowance for clothing was calculated to ensure that a worker could afford essential clothing items for themselves and their family. Housing: A standard amount was allocated for basic housing or shelter, depending on the region's cost of living. Family Composition: The formula also took into account the family size, with the assumption that the worker was supporting a family of four (the worker, spouse, and two children). The amount calculated was considered to be sufficient for the worker to provide for their dependents as well. Additional Allowances: The minimum wage also included provisions for additional needs, such as healthcare, education, and transportation, though these were less explicitly defined in the formula.

2. 3. Union leaders argue that the formula is outdated, as living requirements have drastically changed. Issues raised include the growing cost of internet connectivity, healthcare, and education expenses, which have risen sharply due to privatization.

3. Statements from Other Unions:

   1. The Bharatiya Mazdoor Sangh (BMS), a trade union supported by the Rashtriya Swayamsevak Sangh (RSS), said that the government’s decision to form the commission reaffirmed its commitment to the welfare of working people.
   2. The Central Secretariat Service Forum (CSS Forum) also expressed gratitude, calling the move a “progressive step” that reflects the government’s attention to employees' concerns.

Financial and Economic Impact

1. Revenue Expenditure Growth: The implementation of new pay scales, such as the one following the Seventh Pay Commission, typically leads to an increase in government revenue expenditure.
   1. In the first year of the Seventh Pay Commission (2016-17), the government saw a 9.9% increase in revenue expenditure, compared to a much lower 4.8% increase in the previous year.
   2. Policy Advisor D.K. Srivastava cautioned that such an increase in government expenditure could have a direct impact on the government’s ability to fund its capital expenditures, which are essential for infrastructure and long-term growth.

7th Pay Commission: Approved by PM Manmohan Singh but faced delays in implementation. When: Constitution of the Commission:The 7th Pay Commission was constituted on February 28, 2014, it submitted its report on November 19, 2015 Cabinet approved most of its recommendations on June 29, 2016. Its chairman was Justice Ashok Kumar Mathur and the 2 full-time members were Vivek Rae and Rathin Roy Impacted Groups: Central Government Employees: Including civilians, military personnel, and paramilitary forces. Pensioners: The recommendations also directly impacted pension revisions for retired government employees. Government of India: The financial burden of implementing these recommendations affected the central budget.

Recommendation	Details
Minimum Pay	Entry-level salary: Rs.18,000 per month (from Rs.7,000). Class I Officer salary: Rs.56,100 per month.
Maximum Pay	Apex Scale: Rs.2.25 lakh per month; Cabinet Secretary level: Rs.2.5 lakh per month.
Pay Matrix	Replaces the Grade Pay structure; employee status determined by the level in the Pay Matrix.
New Pay Structure	No new levels introduced; existing levels included in the new structure.
Work-Related Illness and Injury Leave (WRIIL)	Full pay and allowances for employees hospitalized due to WRIIL.
Fitment Factor	Uniform Fitment Factor of 2.57 for all employees, with discussions on increasing it to 3.00 times.
Dearness Allowance (DA)	Recent 2% DA hike benefiting 50 lakh employees and pensioners. Expected further increase of 5%.
Annual Increment	Retained at 3% annually.
Modified Assured Career Progression (MACP)	Stricter performance benchmarks, including a "Very Good" level for promotion eligibility.
Military Service Pay (MSP)	MSP recommended for all defense personnel, including Brigadiers.
Allowances	196 allowances reviewed; 51 abolished and 37 retained.
House Rent Allowance (HRA)	HRA increased by 24%, with further increases when DA crosses 50% and 100%.
Advances	Non-interest-bearing advances abolished, except for PC and House Building Advances. House Building Advance increased from Rs.7.5 lakh to Rs.25 lakh.
CGEGIS	Increased deductions and insurance amounts for employees.
Medical Changes	Health Insurance Scheme for employees and pensioners. Cashless medical benefits for pensioners outside CGHS area.
Pension	New pension formula for pre-2016 retirees based on 50% of last drawn salary with annual increments of 3%.
Gratuity	Gratuity ceiling raised from Rs.10 lakh to Rs.20 lakh. Potential for a 25% increase when DA crosses 50%.
Disability Pension for Armed Forces	Shift from percentile-based to slab-based system for disability pensions.

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