8th Pay Commission: Govt announces next pay panel for central govt employees ahead of Union Budget 2025

SUMMARY

The decision to set up the 8th Pay Commission was taken by Prime Minister Narendra Modi, I&B Minister Ashwini Vaishnaw said.

8th Pay Commission: There are over 49 lakh central government employees and nearly 65 lakh pensioners.

8th Pay Commission: The government of India recently announced the decision to set up the 8th Central Pay Commission (CPC) for its employees.

The announcement has raised hopes of nearly 50 lakh central government employees and 65 lakh pensioners. However, the government has not specified timelines for the new pay commission.

While such details are expected to emerge gradually in the coming months, aspiring and existing central government employees will find it interesting to know the factors or principles that guided the previous pay commissions in framing their salary recommendations.

Why 8th Pay Commission

The 7th Pay Commission was constituted in 2014, and its recommendations were implemented in 2016. The pay panel recommended a fitment factor of 2.57 that raised the minimum basic pay from ₹7,000 to ₹17,990. Its term ends in 2026.

"Since 1947, seven Pay Commissions have been constituted, with the last one implemented in 2016. As the 7th Pay Commission's term concludes in 2026, initiating the process in 2025 ensures sufficient time to receive and review recommendations before its completion," Vaishnaw said.

The Pay Commission’s recommendations not only affect lakhs of central employees and pensioners but also provide a blueprint for the state governments.

What's the demand of central govt employees?

The staff side of the National Council of Joint Consultative Machinery (NC-JCM) has been demanding a fitment factor of 2.86 under the 8th Pay Commission. If accepted, the minimum basic salary of central government employees will increase from ₹17,990 to ₹51,451.

Trade unions had pressed for the formation of the 8th Pay Commission earlier this month during their pre-budget consultation with Finance Minister Nirmala Sitharaman.

They had also sought to increase the minimum pension under the Employees' Provident Fund Organisation (EPFO) scheme to ₹5,000 from the current ₹1,000, raising the income tax exemption limit to ₹10 lakh, and restoring the old pension scheme (OPS) for government employees.

The implementation of Pay Commission recommendations usually has a ripple effect on the economy. A higher disposable in the hands of central government employees and pensioners leads to greater consumer spending, spurring economic growth. However, it also puts pressure on the government exchequer.

Factors that guided pay commissions

Since independence, the central government has established seven pay commissions to improve the pay structure of its employees and attract the best talent to public service.

In 1946, the first CPC focused on ensuring that the salaries provided to central employees were sufficient to help them sustain. Therefore, its recommendations were centered on providing salaries that “meet minimum subsistence requirements,” according to a study titled Pay Commissions: Fiscal Implications by the Institute of Economic Growth, Delhi.

However, the 2nd CPC moved beyond subsistence, focusing on hiring individuals with minimum qualifications to ensure the system's efficient functioning.

As per the study, the 3rd CPC added three important concepts of “inclusiveness, comprehensibility, and adequacy” for a sound pay structure.

The 4th CPC based its recommendations on factors such as “rational and simple pay structure, motivation to staff, roles based on qualification.”

Comparison with the private sector

For the first time since independence, the 5th Pay Commission attempted a comparison of government employees with private sector employees.

The 5th CPC envisioned the role of the state as a “model employer”. To frame its recommendations, it not only considered the principles of equal pay and equal work but the demand and supply-related factors such as productivity and comparability like in the private sector, as per the study

However, the 6th CPC played down the comparison with the private sector because both the entities and roles were not similar.

7th pay commission: Focus on retaining the best talent

The 7th CPC stressed the need to attract and retain high-quality staff in government. It deliberated on intangible benefits to facilitate fair comparison with the private sector, considering the government's role as a model employer.

As per the 7th CPC report, the pay panel ensured that employees should not stagnate, but instead have fair opportunities to progress based on merit and secure better emoluments, thereby preventing frustration.

The 7th CPC ended the concept of separate grade pay for different levels and replaced it with a pay matrix. Additionally, it also refined the Modified Assured Career Progression (MACP) system.

Commenting on the salary recommendations, the 7th CPC noted, “The remuneration package is such that employees would feel that they are valued and they are fairly paid and their remuneration is not less than a person who is similarly situated in another organisation."

However, it also remarked that “employees who have outlived their utility, their services need not be continued.”