8th Pay Commission

Context : The Union Cabinet has approved the constitution of the 8th Pay Commission for central government employees. The last (7th) Pay Commission’s term ends in 2026 , and the 8th Pay Commission will be implemented from January 1, 2026 .

What is the Pay Commission?

The Pay Commission is a body that is set up by the Government of India to review and make recommendations regarding the salaries, allowances, and other benefits for employees of the central government.

Formation and Frequency

  • The Pay Commission is formed every 10 years . Its recommendations are used to revise the salary structure for government employees.
  • It was first constituted in 1947 , and since then, there have been eight Pay Commissions.

Composition

  • The Pay Commission is headed by a chairperson , usually a former senior government official or a retired judge.
  • It also consists of members who are typically senior bureaucrats, economists, and financial expert

Impact on Government Employees and Pensioners

  • The decision will benefit around 4.5 million (45 lakh) central government employees and 6.8 million (68 lakh) pensioners , including defense personnel.
  • Approx. 4 lakh employees in Delhi (including Delhi government employees) will also benefit.

Economic and Fiscal Implications

  • Boost to consumption and economic growth due to increased disposable income.
  • Significant fiscal impact expected, similar to the 7th Pay Commission (which increased expenditure by ~₹1 trillion in FY17).
  • State governments may also revise salaries and pensions , impacting their budgets.
  • The 16th Finance Commission (FY27-FY31) will have to consider the fiscal impact while making recommendations.

Expert Opinions

  • Aditi Nayar (ICRA) : The fiscal impact should be factored into medium-term fiscal consolidation and Finance Commission recommendations.
  • DK Srivastava (EY India) : Salary and pension increases will reflect in FY27 Budget , and arrears may need to be paid.

Practice Questions for Prelims

1. The salaries and pensions of central government employees are classified under which of the following categories in the Union Budget?
  1. Capital Expenditure
  2. Revenue Expenditure
  3. Plan Expenditure
  4. Contingency Fund Expenditure
2. The impact of the Pay Commission recommendations on the economy includes:
  1. Increase in consumption and demand.
  2. Inflationary pressures due to higher government spending.
  3. Reduction in fiscal deficit.
Which of the above statements is/are correct?
  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2, and 3
3. Consider the following statements regarding Public Sector Units (PSUs):
  1. The salaries of PSU employees are also determined by the Pay Commission.
  2. PSUs are classified into Maharatna, Navratna, and Miniratna categories based on their financial performance.
  3. The 8th Pay Commission will include consultations with PSU stakeholders.
Which of the above statements is/are correct?
  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2, and 3