The recommendations and nature of Pay commission of India impact the salary of millions of government employees. Given the huge scale and cost involved, and also a large number of people are impacted, the significance of the pay commission in compensation management is immense.
If you are a government employee, then the decisions of the pay commission directly impact your earnings. If you’re not a government employee, even then this is important to you.
The decisions taken by the pay commission create a huge impact on the exchequer ( national treasury). In turn, it critically impacts the fiscal deficit of the country.
In this article, I will explain everything you need to know about the 7th pay commission and the latest developments around it.
The Pay Commission is an administrative system governed by the Government of India. The purpose of this system is to determine and suggest required changes to the salary of Government employees.
The following categories of government employees are included in the scope of the Pay Commission:
For the purpose of recommending the required changes, the Pay Commission analyses various aspects of the economy. Some of the important factors the commission considers are – the economic condition of the country, financial resources under the purview of the government, corresponding impact on the revenue position of all the state governments, etc.
In addition to the above-mentioned factors, a comparison is made with the similar pay structures in the private sector, along with commonly followed global practices after adjusting the changes to make them relevant to the Indian conditions.
Pay Commissions are generally constituted every 10 years. Post India’s Independence, seven pay commissions have been constituted to examine and recommend changes to salary structures of all Government of India employees.
The Pay Commission is headquartered in Delhi. It is provided a time of 18 months from the date of its constitution, to submit its recommendation.
It is not mandatory for the Government of India to accept the recommendations made by the Pay Commission. The recommendations may either be accepted or rejected by the government.
In short, the pay commission is responsible to revise the salary of all government employees, and it makes adjustments to the salary structure keeping inflation in mind. The decisions taken by the pay commission have the power to impact the earnings of more than 1 crore central government employees and pensioners.
As a result of inflation in the economy, the price of different goods and services increases over the years, due to the increase in the cost of production. As a result of the increase in the rate of inflation, the purchasing power of the money decreases.
This makes it necessary to adjust the salary of central and state government employees. This is because the salary becomes insufficient to sustain the same level of lifestyle and fulfil basic necessities.
The 7th Pay Commission was set up by the UPA Government on 28 February 2014. Justice Ashok Kumar Mathur chaired the 7th Pay Commission.
Some of the prominent members of the 7th pay commission are Shri Vivek Rane (IAS), Dr Rathin Roy (economist, Director NIPFP) and Smt Meena Agarwal (administrative expert) as Secretary.
The 7th Pay Commission submitted its report on 19 November 2015 and the recommendations came into effect on 1st January 2016.
The 7th Pay Commission has put forth the following recommendations:-
The minimum pay for an entry-level – new government recruit shall be INR 18,000 per month. The minimum pay for a newly recruited Class I Officer shall be INR 56,100 per month.
The maximum pay for government employees has been recommended to an increased INR 2.5 lakhs for the top scale of employees like Cabinet Secretary and equivalent.
The rate of annual increment remains unchanged at 3%.
In order to arrive at the new pay scales, a factor of 2.57 shall be applied uniformly to the existing pay of all the employees.
The upper limit of gratuity has been enhanced from INR 10 lakhs to INR 20 lakhs.
Pension formulation has been revised for civil employees, including Central Armed Police Forces (CAPF) personnel and defence personnel retired before 1 January 2016
A Health Insurance Scheme has been introduced for Central Government employees and pensioners.
Non-interest bearing advances and other interest-bearing advances have been removed. Personal computer advance and House Building Advance (HBA) are still eligible. Moreover, the HBA ceiling has been revised from INR 7.5 lakhs to INR 25 lakhs.
A new pay matrix has been designed. The status of the employee shall henceforth be determined by the level in the pay matrix.
MSP is compensation for military service. Military Service Pay (MSP), henceforth, will be admissible only to Defence forces personnel as against all ranks up to and inclusive of Brigadiers and their equivalents, earlier.
Performance Related Pay (PRP) has been introduced. This will subsume the existing bonus scheme for all categories of Central Government employees.
Some of the important updates with respect to the 7th Pay Commission are as follows:-
The 7th Pay Commission recommended a linkage between performance and remuneration of an employee. Performance-related pay has also been introduced.
This system shall be based on an annual appraisal of the employee. Moreover, to further give importance to performance and merit, it was recommended that annual increments of an employee should be withheld if he or she is unable to meet the benchmark required for regular promotion.
Presently, 196 allowances exist. In the new system, it has been proposed that 52 allowances should be abolished and 36 should either be merged under existing heads or be included under proposed allowances.
The 7th Pay Commission Pay Matrix is a table that shows all the pay levels a government employee can be categorized in.
The new pay matrix has incorporated many changes regarding standard pay for entry-level employees, transparency in pay structure, etc as requested by government employees.
With the help of the pay matrix, employees can see what pay level they are at, how much pay they can expect as they progress, etc.
|Existing Pay Brands||Existing Level Of Grade Pay||Available for*||New levels|
|Cabinet Secretary, Defence Chiefs||18|
|*C: Civil, D: Defence, M: Military Nursing Service (MNS)|
All Government employees can evaluate their current status as well as their growth potential in the future. Calculation of pension has also been simplified and procedures have been eased.
A holistic approach has been followed by the panel while finalizing the levels of salaries, allowances and other perquisites of the compensation structure.
The research by the panel commissioned three studies by expert bodies, these are:
1. A study was carried out by IIM Ahmedabad to understand the nature and quantum of total compensation of select job profiles in the government sector vis-à-vis similarly placed profiles in the CPSUs and the private sector
2. A study was carried out by the Institute of Defence Studies and Analyses on the nature, quantum, and components of defence expenditure and defence pension;
3. A study was carried out by IIM Calcutta on the fiscal implications of implementation of the V and VI CPC on the finances of the Union and State Governments.
An open-ended, layered matrix, for civilians as well as for the armed forces personnel, has been developed to determine the new salary.
The objective of this step is to match merit with good compensation.
More than 10 million people in this country depend are employed by the government of India. This makes the government the largest employer in the country. Now, an increase in the salaries of state and central government employees has a precedent of boosting consumption in the past.
According to the opinion of economists, discretionary spending is set to increase for at least two years after the money is disbursed by the government.
Spending is set to increase because people are likely to buy vehicles, electronic goods, and other discretionary items. An increase in the consumption and sales of these products shall create a ripple effect in the economy, thereby, driving consumption further.
All in all, a rise in both urban and rural consumption, is likely to provide a fillip to the country’s GDP.
The total financial impact of implementing the 7th Pay Commission is expected to be approximately INR 1,02,100 crore.
A further analysis of this expenditure reveals that, out of the INR 102,100 crore, the increase in pay would be INR 39,100 crore, the increase in allowances would be INR 29,300 crore and the increase in pension would be INR 33,700 crore.
The overall increase in pay & allowances and pensions is expected to be 23.55%.
As per the estimates, the implementation of the 7th Pay Commission is to put a cumulative fiscal burden on the government to the tune of INR 60,000 crore. This includes the pay and pension hike, including arrears but excluding allowances.
Now, out of the INR 60,000, only INR 43,200 has been budgeted for. It shall be a challenge for the government to fund the remaining deficit.
This deficit may challenge the government’s target of keeping the fiscal deficit within 3.5 per cent of GDP.
Here is a brief history of the evolution of the pay commission over the years since the first pay commission was constituted in May 1947
|First Pay Commission||
|Second Pay Commission||
|Third Pay Commission||
|Fourth Pay Commission||
|Fifth Pay Commission||
|Sixth Pay Commission||
The 7th Pay Commission of India is expected to submit its recommendations in May 2022. The report will be submitted to the Finance Ministry and will go through various rounds of scrutiny before it is finally implemented by the central government.
The government employees are eagerly waiting for their salaries to increase again from the month of July 2022. However, this time around it may not be as much as it was during the implementation of the 6th Pay Commission in 2008.
The Central Government could increase the dearness allowance (DA) of its employees in July 2022. In addition, they could also increase their salaries by 15-20%. This would be done after considering several factors such as inflation rate, consumer price index (CPI), gross domestic product (GDP) growth rate etc.
The delay in the release of their salary hike affected the mental health of government employees. They had to wait for almost three years before they got any news about their salary hike. Now, after waiting for so long, they are eagerly waiting for their salary hike in July 2022.
A senior official from the finance ministry said that there was no delay in releasing salaries to government employees. He added that it was due to some technical issues that delayed the release of salaries by a few months.
He also said that the central government will increase the dearness allowance (DA) again from July 2022 onwards. The DA has already been increased twice this year—from January 1 and April 1—and now it will be increased once again from July 2022 onwards.
The 7th Pay Commission, introduced by the UPA regime, is so important because it affects the earnings of more than 1 crore government employees directly.
It also affects the fiscal deficit position and the GDP of the country. I hope the revisions in Pay Matrix brought by the 7th Pay Commission along with the other changes implemented, would be appreciated and welcomed by government employees across all sectors and cadres.
Disclaimer: The views expressed here are of the author and do not reflect those of Groww.