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Government Announces Formation of the Eighth Pay Commission

Eighth Pay Commission announced: Government Announces Formation of the Eighth Pay Commission

In a landmark decision expected to impact millions of government employees and pensioners across the country, the central government officially announced the formation of the Eighth Pay Commission on Jan 16, 2025. The announcement comes as a response to growing demands for a revision of pay scales to keep pace with inflation and changing economic realities.

The announcement has come after the dearness allowance (DA) for central government employees crossed 50% of their basic salary. With effect from July 1, 2024, the central government employees as well as pensioners started getting 53% dearness allowance and the nxt round of revision scheduled for January 2025.

Objective and Purpose

The primary mandate of the Eighth Pay Commission is to evaluate and recommend a comprehensive revision of salary structures, allowances, and pension schemes for central government employees. The commission will aim to ensure equitable compensation, reflecting current economic conditions, productivity, and fiscal responsibility.

Key Highlights of the Announcement

• The commission will assess the current pay matrix introduced by the Seventh Pay Commission and suggest necessary revisions.
• A thorough review of existing allowances and benefits, including house rent, transport, and dearness allowances, will be conducted.
• Recommendations for improving the pension framework, including benefits for senior citizens and retirees.
• Emphasis on linking performance with pay to promote efficiency and innovation in the public sector workforce.

Composition of the Commission

The government is expected to appoint a panel of experts, including economists, finance specialists, and representatives of employee associations, to form the Eighth Pay Commission. The head of the commission will likely be a senior economist or a retired judge with vast experience in public finance.

Timeline and Process

According to the official announcement, the commission is expected to submit its recommendations within a period of 18 to 24 months. Public consultations and stakeholder engagement will be critical components of the review process, allowing employees' unions and other relevant parties to voice their concerns and suggestions.

Impact on Government Employees

The implementation of the Eighth Pay Commission's recommendations could significantly enhance the living standards of over 11 million government employees and pensioners. The proposed salary revisions are anticipated to provide relief against inflationary pressures and boost consumption, potentially stimulating economic growth.

 

The announcement of the Eighth Pay Commission marks a significant milestone in India's approach to public sector compensation. As the nation waits for the commission’s recommendations, discussions on pay equity, inflation adjustments, and fiscal discipline are likely to dominate public discourse in the months to come.

  

 

 

Overview of 8th CPC

 

Central government in sets up Pay Commission at regular intervals of 10 years to provide recommendations regarding the changes in salary, allowances and pension structure of government employees. The exercise is conducted after every 10 years and recommendations are made taking into account multiple factors such as inflation, cost of living, economic situation. Last pay commission, 7^th CPC was set up in February 2014 and its recommendations were implemented w.e.f. January 2016.

Although it was widely speculated that Government of India will announce the setting up of 8^th Central Pay Commission (8^th CPC) in Budget 2024-25, it was not announced in the budget. However, it is widely expected that it will be set up soon and its recommendations on revising salaries and pension will be implemented on time, i.e. from January 2026. Giving an indication on the same, Finance Secretary, TV Somanathan mentioned in an interview dated 25^th July 2024 that there is still time left to announce next pay commission.

 

The Centre has received proposal to immediately constitute the Eighth Pay Commission to revise the basic pay, allowances, pension and other benefits of the central government employees and pensioners. In a letter addressed to the Cabinet Secretary, Government of India, Shiv Gopal Mishra, Secretary, National Council (staff side, Joint Consultive Machinery for central government employees), pointed out why the central government should form the 8th Pay Commission on priority.

 

Typically, Pay Commission takes around 18 months to submit is findings and final recommendations. Therefore, to implement 8^th CPC on January 1, 2026, the Pay Commission can be set up soon. This is expected to benefit almost 50 lakh Central government employees and 70 lakh pensioners.

Salary rise in previous Pay Commissions

 

Summary of increase and minimum pay under various pay commissions:

 

The table provides the average rise in salary of Central government employees and minimum pay for employee of any pay band in each of the previous pay commissions.

Pay Commission	Fitment Factor	% Of Increase	Minimum Pay
2nd CPC	–	14.2%	Rs.70
3rd CPC	–	20.6%	Rs.196
4th CPC	–	27.6%	Rs.750
5th CPC	–	31%	Rs.2550
6th CPC	1.86	54%	Rs.7000
7th CPC	2.57	14.29%	Rs.18000

 

History of Pay Commissions

  

The Pay Commission is a Central government organization in India tasked with recommending changes to the salary structure of government employees. Established in 1947, it has convened seven times, each time reviewing and making recommendations on pay and service conditions for civil and military employees. It has undergone several iterations, each bringing significant changes to compensation, benefits, and conditions of service, adapting to evolving economic and administrative contexts. The recommendations of these commissions have had profound impacts on the pay and pensions of both civilian and military employees, often reflecting the need for equity and recognition of service.

Historically, armed forces pay and pensions were lower than civilians and thus each pay commission progressively aimed to minimize this disparity. Similarly, different formulas were used for civilian and armed forces pensions. Over the years, changes were made to improve pension structures through various CPCs. Efforts are ongoing to align military pension with civilian counterpart benefits.

 

First Pay Commission

• Established in 1946 to examine pay for civilian employees
• Report submitted in May 1947 under Chairman Srinivasa Varadachariar
• The recommendations for Armed Forces emoluments were made by a separate Departmental Committee
• Also, the pensionary benefits were evaluated by a separate committee called "Armed Forces Pension Revision Committee”

Second Pay Commission

• Set up in 1957 and was chaired by Jagannath Das
• It had a total financial impact of ₹39.6 crore
• Departmental Committee, including service representatives recommended the emoluments for Armed Forces
• Introduced the concept of Dearness Allowance (DA) and revised pay scales

Third Pay Commission

• It was set up in 1970 and was the first commission to review both civilian and armed forces’ pay structures
• Recommended a significant increase in salaries and allowances
• Liberalized family pension was introduced for war widows and their children
• Notable lack of bureaucratic interference in services’ proposal

Fourth Pay Commission

• Set up in 1983 and was chaired by P.N. Singhal
• Introduced the concept of 'Rank Pay' for armed forces
• The total cost to the exchequer was ₹ 1282 crore

 

Fifth Pay Commission

• Set up in 1994 and was chaired by Justice S. Ratnavel Pandian
• Recommended substantial salary hikes and allowances for government employees
• Focused on government workforce reduction by almost 30% and pension structure, however the recommendations were not implemented

Sixth Pay Commission

• It was commissioned in year 2006 and submitted its report in 2008
• The commission was chaired by Justice BN Srikrishna
• One of the key demands was to make salaries comparable with the private sector where the emoluments were increasing due to globalization of Indian economy
• Established to address ambiguities in pay scales; reduced the number of pay scales and concept of pay bands was introduced
• It also recommended removal of Group D cadre

Seventh Pay Commission

• It was constituted in September 2013 and was headed by Justice AK Mathur
• Recommended 23.55% hike in pay and allowances effective from January 2016
• Addressed concerns regarding armed forces' hierarchy and pay scales
• Increased the minimum pay from Rs. 7000 to Rs. 18000
• Fitment factor was decided as 2.57 that was used to calculate revised salaries across all bands
• Rise in maximum limit of borrowing for a new house construction or purchase to Rs 25 lakh from Rs 7.50 lakh earlier
• This was the fastest implementation of recommendations and took just 6 months, compared to 19 months in 6^th CPC