Pay commission impacts the salary of millions of government employees. Given the huge scale and cost involved, also a large number of people impacted, the significance of the pay commission 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 creates 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.

What Is The Pay Commission?

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:

  • All Central Government employees (including industrial and non-industrial)
  • All  personnel of the Union Territories
  •  All officers and employees of the Indian Audit and Accounts Department
  • All members of the regulatory bodies which have been set up under the Acts of Parliament (excluding the RBI)
  • All officers and employees of the honorable Supreme Court
  • All personnel belonging to the Indian Defence Forces

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 it 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.

ole of 7th Pay Commission

 

Importance Of The Pay Commission

In short, the pay commission is responsible to revise the salary of all government employees, and it makes the adjustments to the salary structure keeping inflation in mind. The decisions taken by the pay commission has 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 fulfill basic necessities.

Read more: Retirement planning – Are you ready to fight inflation?

The 7th Pay Commission

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 had submitted its report on 19 November 2015 and the recommendations came in to effect from 1st January 2016.

1. Important Recommendations By The 7th Pay Commission

The 7th Pay Commission has put forth the following recommendations:-

  • Minimum Pay Scale For All Government Employees

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.

  • Maximum Pay For Government Employees

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.

  • Annual Increment

The rate of annual increment remains unchanged at 3%.

  • Fitment Factor

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 Revisions

Pension formulation has been revised for civil employees, including Central Armed Police Forces (CAPF) personnel and defense personnel retired before 1 January 2016

  • Medical Facility

A Health Insurance Scheme has been introduced for Central Government employees and pensioners.

  • Changes In Advances

Non-interest bearing advance 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.

  • New Structure

A new pay matrix has been designed. The status of the employee shall henceforth be determined by the level in the pay matrix.

  • Military Service Pay

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.

  • Pay Based On Performance

Performance Related Pay (PRP) has been introduced. This will subsume the existing bonus scheme for all categories of Central Government employees.

All About 7th Pay Commission

2. 7th Pay Commission: Latest Updates

Some of the important updates with respect to the 7th Pay Commission are as follows:-

  • The Central Government has increased the dearness allowance from 3 % to 12 %.
  • The retirement age for the constable to commandant (senior superintendent of police) has been increased to 60 years, from the present 57 years. This move is aimed to bring parity in the retirement age.
  • Fresh categories within the ambit of Risk and Hardship Allowance have been constituted by the Ministry of Railways.
  • Bihar CM Nitish Kumar declared to give 7th pay commission salaries to madrassa teachers of the state. This decision will benefit thousands of academicians.

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.

3. 7th Pay Commission Pay Matrix

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
PB-1 1800 C 1
1900 C 2
2000 C, D 3
2400 C 4
2800 C, D 5
PB-2 3400 D 5A
4200 C, D 6
4600 C, D 7
4800 C, D 8
5400 C 9
PB-3 5400 C,D,M 10
5700 M 10A
6100 D 10B
6100 M 10B
6600 C,D,M 11
7600 C 12
PB-4 7600 M 12
8000 D 12A
8400 M 12B
8700 C 13
8700 D 13
8900 C 13A
8900 D 13A
9000 M 13B
10000 14
HAG 15
HAG+ 16
Apex 17
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.

4.The Approach Followed By 7th Pay Commission Panel

A holistic approach has been followed by the panel while finalizing the levels of salaries, allowances and other perquisites of 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 nature, quantum, and components of defense expenditure and defense pension;

3. A study was carried out by IIM Calcutta on 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.

5. Impact on Consumption

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.

th Pay Commision for Gov employees

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 the urban and rural consumption, is likely to provide a fillip to the country’s GDP.

6. Impact On Government Spending

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, increase in allowances would be INR 29,300 crore and 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 percent of GDP.

History: Earlier Pay Commissions

Here is a brief history of the evolution of the pay commission over the years since the first pay commission that was constituted in May 1947

Pay Commission Highlights
First Pay Commission
  • The 1st Pay Commission was Chaired by Shri Srinivasa Varadacharia. It was constituted in January 1946 and it submitted its report on May 1947
  • The idea of ‘living wages’ to the employees was implemented
  • INR 55 was fixed as minimum wage
Second Pay Commission
  • The 2nd Pay Commission was Chaired by Shri Jaganath Das. It set up in August 1957 and it submitted its report after two years
  • This commission revised the previous pay scales by merging 50% of the Dearness Allowance with Basic Pay. Moreover, it recommended INR 80 as the minimum remuneration (Basic Pay of INR 70 and DA of INR 10)
Third Pay Commission
  • The 3rd Pay Commission was Chaired by Shri Raghubir Dayal. It was constituted in April 1970 and the report was submitted in March 1973
  • Minimum remuneration of INR 196 per month was recommended
Fourth Pay Commission
  • The 4th Pay Commission was Chaired by Shri P N Singhal. It was constituted in June 1983 and it submitted its report in three phases within a period of 4 years
  • The government was recommended to constitute permanent machinery to undertake periodical review of pay and allowances of Central Government employees which was not implemented
Fifth Pay Commission
  • The 5th Pay Commission was Chaired by Justice S Ratnavel Pandian. It was constituted in June 1994 and it submitted its report in January 1997
  • The government was recommended to reduce the number of pay scales and increase the minimum pay from INR 750 to INR 2550
Sixth Pay Commission
  • The 6th Pay Commission was Chaired by Justice BN Srikrishna. It was constituted in July 2006 and it submitted its report on March 2008
  • Running pay bands were introduced by this commission
  • Minimum salary at entry-level pay band was fixed at INR 7000 and maximum salary at secretariat/equivalent level was INR 80,000

Conclusion

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.

Read more: 30 best mutual funds to invest in 2019

Happy investing!

Disclaimer: The views expressed here are of the author and do not reflect those of Groww.