8th Pay Commission: Why Fitment Factor Is Seen In The Range Of 1.8 To 2.57 — How Salaries Will Rise

Fitment factor, or the multiplication unit used for revision of salaries and pensions, remains the buzzword for central government employees who are awaiting the implementation of 8th Pay Commission.

The Terms of Reference (ToR) for the pay panel was approved by the Union Cabinet last week, about 10 months after its formation was given the go-ahead.

Headed by Justice (retired) Ranjana Desai, the 8th Pay Commission would be meeting various stakeholders over the next several months, before recommending the fitment factor and other modalities for wage revision.

The staff side of National Council-Joint Consultative Machinery (NC-JCM) will be at the forefront of representing the central government employees and pensioners.

A senior leader of the employee forum told NDTV Profit earlier this year that they would expect the 8th Pay Commission to recommend a fitment factor which is at least same as the 7th pay panel, if not higher.

Since the last pay commission recommended a fitment factor of 2.57, it was understood that the forum could be looking to negotiate around that mark once the new panel is formed. However, NC-JCM staff side members told NDTV Profit in June that they would first await the approval of ToR, and then finalise the fitment factor that they would demand.

As of now, the NC-JCM staff side has not issued any official statement related to their fitment factor demand, or whether they have had any internal deliberations on the matter.

A member of the forum, who spoke to NDTV Profit in September, said on the condition of anonymity that the demand of fitment factor is finalised after considering an array of factors, including inflation, cost of living index and Dr Aykroyd's formula, which has formed the basis of determining the fitment factors in the past as well.

Dr Aykroyd's formula is linked to 20th-century American nutritionist Wallace R Aykroyd. The formula takes into consideration the increase in prices of various commodities that constitute a common person's basket, which is reviewed periodically by the Labour Bureau in Shimla.

Meanwhile, a research report released by Ambit Capital on July 9 indicated the fitment factor won't exceed 2.46. This suggested that the multiplication unit for salary revision could be lower than what was recommended by the 7th Pay Commission.

"As per back-of-the-envelope calculations, depending on the salary growth seen over different Pay Commissions, the range of fitment factors that the government could be looking at lies between 1.83 and 2.46," it had stated.

"There have been speculations about considering a higher fitment factor (2.57-2.86) this time around, though we do not expect this to materialise," Ambit Capital had said.

A further bearish scenario was put forth by Kotak Institutional Equities, which said in its report dated July 21 that the fitment factor could be 1.8.

If one goes by the fitment factor projected in the Kotak report, then the basic salary may rise by 1.8 times, or 80%, under the 8th Pay Commission. However, the effective hike in the net salary will be lower as the dearness allowance—presently at 58% of the basic pay—will be reset to zero once the new pay commission comes into effect.

How Salaries Will Rise Based On The Estimated Fitment Factor

Ambit Capital, which projected a fitment factor of 1.83 to 2.46, said the effective hike in salaries is seen in the range of 14% to 34%. According to the Kotak report, the fitment factor of 1.8 will result in an effective salary hike of 13%.

At the lower end of the estimated range, the effective salary hike would be lower as compared to the 7th Pay Commission. Despite the fitment factor being 2.57 (or 157%), the effective rise in pay was of 14.3%. This is because the DA, at the end of the tenure of 6th Pay Commission, had risen to 125%. The same was reset to zero once the 7th pay panel's report came into effect.

Notably, the DA is generally added as a supplement to the basic salary six months after the pay commission comes into effect. It is revised at every six months subsequently to offset the impact of inflation.

Under the 7th Pay Commission, the overall minimum wage was revised in the following the manner in 2016: Rs 18,000 (basic salary) + Rs 4,320 (House Rent Allowance) + Rs 1,350 (Travel Allowance) + Rs 0 (Dearness Allowance) = Rs 23,670.

This minimum salary, however, is currently supplemented by an additional Rs 10,440, as the DA has risen overtime to 58% of the basic pay.

Meanwhile, if only the increase in basic salary is to be estimated (without factoring in the DA, HRA and TA), then here's how the same may rise:

• Fitment factor of 1.8: Rs 18,000 x 1.8 = Rs 32,400

• Fitment factor of 2.0: Rs 18,000 x 2 = Rs 36,000

• Fitment factor of 2.46: Rs 18,000 x 2.46 = Rs 44,280

• Fitment factor of 2.57: Rs 18,000 x 2.57 = 46,260