PM Modi approves setting up of 8th pay commission

Prime Minister Narendra Modi on Thursday approved establishment of the Eighth Central Pay Commission for revising salaries, that is expected to benefit 5 million government employees and 6.5 million pensioners, including defence personnel.

“By deciding to form the Eighth Pay Commission in 2025, we have sufficient time to receive recommendations well before completion of the Seventh Pay Commission,” said Ashwini Vaishnaw, information and broadcasting minister, in a briefing after a Cabinet meeting.

The chairman and two members of the commission will be appointed soon, the minister added. The Seventh Pay Commission came into effect in 2016 and will conclude in January 2026.

State govt pay

The decision to set up the next panel comes ahead of the assembly elections in Delhi on February 5. The move is expected to benefit about 400,000 Delhi government employees, including defence staff posted here, said a government source. Typically, increases in the salaries of state government employees follow the central government pay rise.

“This process will involve massive consultation with state governments, central government, PSUs (public sector units) and different stakeholders,” Vaishnaw said.

Central pay commissions are typically formed once every 10 years to decide on modalities for the revision of salaries and pensions. The commission also recommends the formula for the revision of dearness allowance and dearness relief for central government employees and pensioners to compensate them for inflation. The revision, once effective, provides a boost to the economy but adversely impacts the government’s finances.

Quantum of Hike

The Seventh Pay Commission introduced a fitment factor of 2.57 that raised the minimum basic pay from Rs 7,000 to Rs17,990.

The central trade unions, which had pressed for the early setting up of the Eighth Pay Commission, had demanded the Centre consider a fitment factor of 2.86, which means revision of wages by over 180%.

Representatives of central government employees said a steep rise in wages is expected with the implementation of the Eighth Pay Commission. “Cost of essentials has risen significantly from a decade ago and the unions will demand a fitment factor of around 3 during discussions with the Pay Commission,” an official close to the development told ET.

This effectively means that worker representatives will seek a threefold hike in basic wages from the Centre.

“We look forward to a better formula than what was there in the Seventh Pay Commission, especially with reference to the large pool of contract workers in government departments, both in the Centre and in states, and their coverage,” said Amarjeet Kaur, general secretary of the All-India Trade Union Congress (AITUC).

It’s a “progressive step that reflects the government’s commitment to addressing the concerns of central government employees and ensuring their well-being,” said Udit Arya, president of CSS Forum.

Fiscal Recalibration

The Seventh Pay Commission saw an expenditure increase of Rs 1 lakh crore for FY17, providing a significant boost to consumption and economic growth. Revenue expenditure rose 9.9% in FY17 following the implementation, against a 4.8% rise in the preceding financial year.

“There is a need to properly calibrate the path of fiscal consolidation in view of the additional pressures generated resulting from these revisions,” said DK Srivastava, chief economist at EY. “There would be tangible increases in government revenue expenditures, affecting the Sixteenth Finance Commission estimates and their recommended transfers.”

Pay commission rewards are usually followed by state governments, causing a cascading effect. The recommendation period for the Sixteenth Finance Commission extends from 2026-27 to 2030-31.

The Seventh Pay Commission was constituted by the then Manmohan Singh-led government in February 2014 and its recommendations were implemented by the Modi government from January 2016 onwards.