8th Pay Commission: Fitment Factor Likely Between 2.5 And 3, Says Tamil Nadu Ex-Chief Secy

The 8th Pay Commission may recommend a fitment factor in the range of 2.5 to 3, according to economist KR Shanmugam, who had earlier served as the chief secretary of the Tamil Nadu government.

Fitment factor, or the multiplication unit used for revision of salaries and pensions, is recommended by the pay commissions after consulting various stakeholders and taking into consideration the pace of inflation, cost of living index, and the overall economic conditions of the country.

"The 8th CPC is expected to revise the fitment factor (likely between 2.5 and 3) based on inflation, productivity indices and fiscal considerations," Shanmugam wrote in a column published by the Financial Express. This is in sharp contrast to the fitment factor range projected in recent months by brokerages, who do not see the multiplication unit exceeding 2.46.

"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 said in a note issued in July.

The upper end of the fitment factor estimated by Shanmugam, which is 3.0, suggests a potential 200% rise in the base salary. However, the effective hike will be lower as the existing base salary is supplemented by 58% dearness allowance. This will be reset to zero once the 8th Pay Commission comes into effect.

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

Shanmugam, in his column, also noted that the 8th pay panel is expected to recommend performance-linked pay, and propose a hybrid or contributory model to address the demand for Old Pension Scheme.

The commission is also expected to rationalise house rent allowance and travel/transfer allowances, by linking them to occupational categories and updated cost indices, he suggested.

The commission has been formally constituted this month, nearly 10 months after it received the Union Cabinet's go-ahead. The panel, headed by Justice (retired) Ranjana Desai, is expected to hold deliberations with various stakeholders over the next several months before recommending the fitment factor and other modalities for salary and pension revision. The Centre has given the panel an 18-month deadline to submit its report.