8th Pay Commission: 30-34% Effective Salary Hike On Cards, Rollout Likely In FY27, Says Ambit Capital

Following the implementation of 8th Pay Commission, the effective hike in the salaries of central government employees and pensions of retirees is likely to be in the range of 30-34%, according to Ambit Capital.

This hike, expected to come into effect in financial year 2026-27, is likely to cost the Centre an additional Rs 1.8 lakh crore, the brokerage said in a note issued on Wednesday.

In comparison, an estimated burden of Rs 1.02 lakh crore was added on the exchequer following the rollout of 7th Pay Commission in FY17.

While there is no official word yet on the timeline for 8th Pay Commission, stakeholders who spoke to NDTV Profit last month indicated that the implementation may get pushed to FY27 as the panel is yet to be setup.

After the 8th Pay Commission is formally constituted, it would require several months to hold deliberations with all the stakeholders, and present its report entailing the fitment factor and other modalities for salary revision. The last pay panel, which was the 7th Pay Commission, had required 18 months to submit the report.

Notably, pay commissions are formed once in 10 years by the central government. However, the salaries are adjusted periodically through bi-annual hike in the dearness allowance, which is aimed at offsetting the impact of inflation.

The DA, following the last raise of 2% with effect from January 2025, stands at 55% of the basic pay. Once the 8th Pay Commission is rolled out, this DA component of the salary will be reset to zero.

Since the DA component is reset to zero, the effective salary hike is lower even if the fitment factor is high, Ambit Capital explained.

Under the 6th Pay Commission, an employee earning a basic pay of Rs 7,000 actually took home Rs 15,750. The 7th Pay Commission recommended a fitment factor of 2.57, raising the minimum basic pay to Rs 18,000.

"However, DA was reset to zero at the start of the new Commission. Consequently, the actual increase in the salary component was 14.3% (Rs 18,000 over the previous Rs 15,750). When allowances were included, the overall compensation saw an increase of 23% in the first year," Ambit Capital said.

The brokerage's estimate of 30-34% effective salary hike signals that it is expecting a significant fitment factor—the multiplication unit used for pay revision—to be recommended by the 8th Pay Commission.

Employee union leaders had, in earlier conversations with NDTV Profit, indicated that they would be demanding the panel to recommend a fitment factor similar to the 7th Pay Commission if not higher.

The rollout of revised salaries and pensions under the 8th Pay Commission will boost consumption, which in-turn could give a 30-50 basis points bump to the gross domestic product, Ambit Capital said.

"Based on historical trends and our channel checks, conventional assets like housing (and housing loans) and motor vehicles tend to be of interest. With consumption trends evolving towards services over the last decade and deeper financialisation in the economy, sectors like QSR and BFSI sub-sectors like insurance and non-lending financials could benefit," it added.

According to the brokerage, the real GDP growth in FY16 would have been around 200 basis points lower in the absence of 7th Pay Commission.

Once the 8th Pay Commission is rolled out, markets can benefit from higher pensions flow, Ambit Capital said.

With the Unified Pension Scheme implemented from FY26, the government’s contribution to pension fund as—percentage of employee salary—increased to 18.5% from 14% earlier under the National Pension System.

Of this, 8.5% is under the government’s discretion as to where to park the fund. If it decides to follow global norms of parking around 45% in equities, flow into equity markets could increase from about Rs 24,500 crore to around Rs 46,500 crore, the brokerage stated.