8th Pay Commission: Fitment Factor Range 1.83 To 2.46, Says Brokerage — Check Expected Salary Hike
As per Ambit Capital's estimated fitment factor under the 8th Pay Commission, a base salary of Rs 50,000 can rise up to Rs 1.23 lakh.
Ambit Capital's latest note on 8th Pay Commission has sparked discussions over the potential hike in salaries of central government employees and pensions of retirees. While the brokerage sees 30-34% effective hike in wages and pensions, it also shares an estimated range of fitment factor.
The fitment factor—the multiplication unit used for revision—is likely to be in the range of 1.83 to 2.46, the brokerage said in the note dated July 9.
"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 stated.
The estimated number is significantly lower as compared to the fitment factor of 2.57 recommended by the 7th Pay Commission back in 2015. The panel's recommendation had came into effect from January 2016.
Historically, the fitment factor has varied across different pay commissions. For instance, the 7th Pay Commission recommended a common fitment factor of 2.57 (based on consumption needs and inflation), which increased the minimum basic pay for central government employees to Rs 18,000 per month from Rs 7,000.
"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.
Expected Salary Hike
As per the brokerage's estimated fitment factor range of 1.83-2.46, the minimum pay could increase in the range of Rs Rs 32,940 to Rs 44,280.
This calculation is based on the fact that the basic salary is multiplied with the fitment factor to determine the revised wage. At present, the basic minimum salary under the 7th Pay Commission stands at Rs 7,000.
If multiplied with 1.83—the lower end of the fitment factor range shared by Ambit Capital—the minimum salary could rise to Rs 32,940 (Rs 18,000 x 1.83). At the upper end of the estimated range, the minimum salary could surge to Rs 44,280 (Rs 18,000 x 2.46).
Similarly, a base salary of Rs 50,000 can rise to Rs 91,500 at the lower end of the fitment factor, and Rs 1.23 lakh at the upper end.
While this indicates an estimated hike in the range of 83% to 146%, the effective salary hike would be much lower as the dearness allowance is reset to zero once the new pay commission comes into effect.
The DA Factor
Notably, the DA is hiked on a bi-annual basis to offset the impact of inflation. Following the last increase of 2% with effect from January 2025, the DA currently stands at 55% of the basic pay.
By the time the 8th Pay Commission is implemented, the DA of central government employees would rise to over 60% of the basic pay set under the 7th Pay Commission.
Since the DA component will be reset to zero, the effective salary hike would be lower even if the fitment factor is high.
Under the 6th Pay Commission, an employee earning a basic pay of Rs 7,000 actually took home Rs 15,750, if the DA component is taken into account. 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)," Ambit Capital explained.
"It is important to note that, even with a 2.57 fitment factor in the 7th Pay, overall government salaries did not grow by 2.57x, (but) only the base pay did. As soon as a Pay Commission ends, the dearness allowance (DA) becomes zero as the index is re-based," it added.
The effective salary hike under the 7th Pay Commission was 14%, one of the lowest, as the DA component of the salaries of central government employees stood at 125% back then. In case of the 8th Pay Commission, the effective salary is estimated to be higher—30-34%—as the DA component is significantly lower.
