New Delhi: In a bonanza, one crore government employees and pensioners will get a 2.5 times hike
in basic pay and pensions under the 7th Pay Commission recommendations that will cost the exchequer annually Rs 1.02 lakh crore, which the government says will have a multiplier effect on economy.
The new scales of pay provide for entry-level basic pay going up from Rs 7,000 per month to Rs 18,000, while at the
highest level i.e. Secretary, it would go up from Rs 90,000 to Rs 2.5 lakh. For Class 1 officers, the starting salary will be Rs 56,100.
Pay hike for Central government employees. Reuters
The Union cabinet on day accepted the recommendation of Justice AK Mathur headed panel due to which there would be a recurring burden of Rs 72,800 crore every year, while the current fiscal’s burden would be Rs 84,933 crore in view of the fact that they would be implemented from 1 January, 2016.
While the cabinet in its meeting, chaired by Prime Minister Narendra Modi, accepted the recommendations in respect of the hike in basic pay and pension, a decision on its suggestions relating to allowances has been referred to a Committee headed by Finance Secretary.
Announcing the government’s decision, Finance Minister Arun Jaitley said government salaries have to be respectable
in comparison to private sector, for which the Commission had engaged IIM-Ahmedabad for making a comparison.
“The recommendations of the Pay Commission with respect to pay and pension, have been accepted by and large by the
government. And those recommendations will be implemented with effect from January 1, 2016, and the arrears would also be paid in this year,” he said.
The recommendations cover 47 lakh central government employees and 53 lakh pensioners. This include 14 lakh serving
employees and 18 lakh pensioners in defence forces.
Allaying fears of government’s fiscal maths going wrong, Jaitley said the budget has provided for the anticipated
expenditure and it did not come as a surprise.
Concerns have also been expressed over the extra money in the economy pushing up inflation. The minister admitted that there will be some inflationary pressure.
Maintaining that government cannot grudge a hike in salary for government staff after 10 years, he said, “when
people get more money, it comes back in the system in the form of taxation. Savings will increase … spending will go up”.
The Pay Commission had recommended abolition of 53 out of 196 allowances that the government employees currently get and moderation in several others.
The scrapping of the allowances was opposed by the Unions and so it has been referred to a Committee of Secretaries.
The once in a decade pay hike has seen burden on exchequer rise from Rs 17,000 crore in the 5th Pay Commission to Rs 40,000 crore in the 6th and Rs 1,02,100 crore in the 7th Pay Commission, Jaitley said.
While the cabinet approved the Commission’s recommendation of enhancing ceiling of house building loan from Rs 7.5 lakh to Rs 25 lakh, the suggestion of deducting Rs 1,500-5,000 per month towards group insurance was not accepted.
Rate of annual increment has been retained at 3 percent.
Also interest free advances for medical treatment, travel allowance and LTC have been retained. “All other interest free advances have been abolished,” an official statement said.
For armed forces, gratuity ceiling has been doubled to Rs 20 lakh and it would increase by 25 percent whenever Dearness Allowance rises by 50 percent.
Jaitley said the cabinet has brought about a parity between defence personnel and Combined Armed Police Forces by
providing an additional indexation.
“Government salaries have to come to at a respectable level so that the government is able to attract the best
talent. Not necessarily in civil services alone but also other services and therefore irrevocable consequence of this would be a pressure on the Budget along with OROP recommendations,” Jaitley said.
He said since there will be more money in the market to spend, it will generate more demand, that will help push
economic growth. Also additional savings will help economy, but in the flip side more money supply will lead to
The minister also announced Constitution of a separate committee to look into anomalies arising out of the
implementation of the 7th Pay Commission recommendation.
Another panel would be set up to suggest streamlining the implementation of the National Pension System.
After the cabinet meeting, Jaitley had tweeted that it was a “historic” increase for government employees.
“Congratulations to central government officers, employees & pensioners on a historic rise in their salary &
allowances through the 7th CPC (Central Pay Commission),” he tweeted.
At the press briefing he said the government took just six months time to implement the 7th Pay Commission
recommendations, as against 19 months taken to implement fifth Pay Commission and 32 months for the sixth.
The 7th Pay Commission had in November last year recommended an average 14.27 per cent hike in basic pay at
junior levels, the lowest in 70 years. The previous 6th Pay Commission had recommended a 20 per cent hike which the
government doubled while implementing it in 2008.
After including allowances, the hike in remuneration proposed by the 7th Pay Commission came to 23.55 percent.
Jaitley said that the government intends to pay arrears for six months within the course of this year.
“When you spend there is taxation, demand is also generated. When you save that, savings is used in development
of the country. It also has some inflationary pressure.
“So the extra money also comes back into the system which increases size of economy. We don’t have any option,” he
On the strike threat by certain unions, Jaitley said after the 7th Pay Commission award the salaries of government
employees have surpassed those in private sector.
“After implementation of 7th Pay Commission report, government salaries are distinctively higher than the market
salaries and the private sector salaries. So, there is no logic in opposing it,” he said.
Of the Rs 84,933 crore additional burden on the exchequer in the current financial year, Rs 60,608 crore would be on the general budget and the remaining Rs 24,325 crore on the railways.
While the Pay Commission applies to central government employees, state governments usually follow suit and emulate
the revision in salaries. There is a separate Pay Commission for deciding on salaries of central PSU employees.
The statement said that the present system of Pay Bands and Grade Pay has been dispensed with and a new Pay Matrix as recommended by the Commission has been approved.
“The status of the employee, hitherto determined by grade pay, will now be determined by the level in the Pay Matrix. Separate Pay Matrices have been drawn up for Civilians, Defence Personnel and for Military Nursing Service,” the statement said.
All existing levels have been subsumed in the new structure and no new levels have been introduced nor has any
level been dispensed with.
“Index of Rationalisation has been approved for arriving at minimum pay in each Level of the Pay Matrix depending upon the increasing role, responsibility and accountability at each step in the hierarchy,” the statement said.
The minimum pay has been increased from Rs 7,000 to Rs 18,000 per month. Starting salary of a newly recruited employee at lowest level will now be Rs 18,000 whereas for a freshly recruited Class I officer, it will be Rs 56,100.
“This reflects a compression ratio of 1:3.12 signifying that pay of a Class I officer on direct recruitment will be
three times the pay of an entrant at lowest level. For the purpose of revision of pay and pension, a fitment factor of 2.57 will be applied across all Levels in the Pay Matrices,” the statement said.
For defence personnel, hospital leave, special disability leave and sick leave have been subsumed into a composite new leave named ‘Work Related Illness and Injury Leave’ (WRILL). Full pay and allowances will be granted to all employees during the entire period of hospitalisation on account of WRIIL, it said.
A common regime for payment of ex-gratia lump sum compensation for civil and defence forces personnel payable to
Next of Kin with the existing rates enhanced from Rs 10-20 lakh to 25-45 lakh for different categories.
Rates of Military Service Pay have been revised from Rs 1,000, 2,000, 4,200 and 6,000 to 3,600, 5,200, 10,800 and
15,500 respectively for various categories of Defence Forces personnel.
The cabinet also approved terminal gratuity equivalent of 10.5 months of reckonable emoluments for Short Service
Commissioned Officers who will be allowed to exit armed forces any time between seven and 10 years of service.
The statement said the Finance Ministry is working out a customised group insurance scheme for Central Government
Employees with low premium and high risk cover.
As regards the Finance Secretary headed Committee for rationalisation of allowances, the statement said the Committee will submit its reports within a period of four months.
“Till a final decision, all existing Allowances will continue to be paid at the existing rates,” it said.
The 7th Pay Commission examined a total of 196 existing Allowances and, by way of rationalisation, recommended
abolition of 51 Allowances and subsuming of 37 Allowances.
“As estimated by the 7th CPC, the additional financial impact on account of implementation of all its recommendations in 2016-17 will be Rs 1,02,100 crore. There will be an additional implication of Rs 12,133 crore on account of payments of arrears of pay and pension for two months of 2015-16,” the statement said.