Why 8th Pay Commission may end up disappointing government employees and pensioners
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What is a fitment factor? How does it impact salary and pension hikes?
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It is this fitment factor that, if set low, could disappoint central government employees and pensioners. According to Kunal Sharma, Founder & Managing Partner, Taraksh Lawyers & Consultants, it may also invite some legal scrutiny
What makes up a central government employee's salary?
First is the basic pay, which is the core component of one's salary, on which the fitment factor is applied.
DA, or Dearness Allowance, is a bi-annual adjustment announced by the government to help employees mitigate the impact of inflation on their overall earnings. This is revised every year in January and July. Following the January 2025 announcement, the DA presently stands at 55% of basic pay. So, assuming that an employee's basic pay is Rs 20,000 per month, their DA would come to Rs 11,000.
A percentage of basic pay is also marked for HRA (Housing Rent Allowance) to cover rental expenses, and transport allowance, which is a fixed amount depending on your pay scale and the city you live in.
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Pay Commission
% hike in real pay (change in basic pay, Dearness Allowance
2nd Pay Commission
14.2
3rd Pay Commission
20.6
4th Pay Commission
27.6
5th Pay Commission
31
6th Pay Commission
54
7th Pay Commission
14.3
When is the 8th Pay Commission likely to be implemented?
Over 33 lakh Indian central government employees and more than 66 lakh pensioners, eagerly waiting for the implementation of the 8th Pay Commission , may be in for some disappointment if they are expecting a substantial hike in their salaries and pensions.And why is that? A recent report from Kotak Institutional Equities suggests that the fitment factor for the 8th Pay Commission could be as low as 1.8, resulting in only around a 13% hike in real pay.For reference, a prior report from Ambit Capital noted that the current 7th Pay Commission, which will conclude in December 2025, resulted in a 14.3% salary boost effective from 2016, not including allowances, which was still higher than what is being anticipated for the upcoming 8th Pay Commission.Continue reading to understand why the 8th Pay Commission may not lead to a significant salary increase for central government employees and pensioners, as well as when it is likely to be implemented.The report by Kotak Institutional Equities titled '8th Pay Commission: One-time boost… some time away' expects a fitment factor of around 1.8. The actual hike in a central government employee's salary or pensions depends entirely on this 'fitment factor' or multiplier, as recommended by the commission.The fitment factor is used to calculate an employee's new basic pay based on their current basic pay. For example, the 7th Pay Commission had set a fitment factor of 2.57, raising the monthly minimum basic pay for central government employees from Rs 7,000 to Rs 18,000.However, it's important to understand that a fitment factor of 2.57 does not mean the total salary gets a 2.57x boost. This fitment factor is applied solely to the basic pay, thereby increasing it.'Employee unions, particularly the staff side of the National Council-JCM, have formally opposed the proposed reduction, asserting that such a move would be inequitable and demoralizing, especially in the context of rising inflation and cost of living', he says.'The principle of non-retrogression in administrative law implies that benefits once conferred should not be arbitrarily reduced. A lower fitment factor may be construed as a regressive policy shift, potentially inviting judicial scrutiny. While the 8th CPC is yet to be formally constituted, the preliminary reports suggest a disappointing trajectory for central government employees", he further continues.There are 4 components of a central government employee's salary:According to Ambit Capital's report, as soon as a pay commission ends, the dearness allowance (DA) becomes zero as the index is re-based. Going by this, the DA will be merged with basic pay and reset to 0 under the 8th Pay Commission.'To determine the percentage of dearness allowance/dearness relief immediately to be merged with pay & pension' has also been stated as one of the terms of reference submitted by the National Council of Joint Consultative Machinery (NCJCM) to the government.However, not everyone agrees with this conservative estimation. Utsav Trivedi, Partner, TAS Law, remains optimistic.'The 8th Pay Commission is expected to deliver a substantial salary increase for central government employees, with a fitment factor ranging between 2.6 to 2.86. This revision, likely to be implemented by January 2026, could lead to a 40-50% increase in salaries and pensions. This significant change will benefit 4.9 million central government employees and around 6.5 million pensioners, including the defense personnel. With a projected fitment factor of up to 2.86, 40-50% salary hikes are expected after implementing the 8th Pay Commission'.The process began in January 2025, with the announcement of the 8th Central Pay Commission, but there has been no progress in appointing its chairman and defining its terms of reference. 'The usual process would be to constitute the CPC, which will then deliberate with central and state government officials, representatives of employee organizations and pensioners, experts, etc. After the consultations, the CPC will submit its report and recommendations to the government. The government will seek Cabinet approval to implement the recommendations', says the Kotak report.Notwithstanding the delay, the 8th Pay Commission's recommendations will be effective from January 2026. Hence, the greater the delay in implementing the recommendations, the higher the arrear payouts for central government employees and pensioners will be.
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