8th Pay Commission: Cabinet Approves Terms Of Reference, Ending Months-Long Wait For Central Govt Employees

The Union Cabinet on Tuesday approved the formation of the 8th Pay Commission, ending months-long wait for over one crore central government employees and pensioners.

The salaries and pensions are likely to be revised in 2027, as the 8th Pay Commission will submit its recommendations in 18 months.

In a press note issued following the Cabinet meeting, it was stated that the Terms of Reference (ToR), which will act as the broad framework for the 8th Pay Commission, "have been approved".

The panel will comprise of one chairperson; one member (part time) and one member-secretary, the Cabinet said. "It will make its recommendations within 18 months of the date of its constitution."

Justice Ranjana Prakash Desai has been named as the chairman of the 8th Pay Commission, whereas IIM Bangalore Prof Pulak Ghosh and MoPNG Secretary Pankaj Jain have been named as members.

"The 8th Pay Commission may consider, if necessary, sending interim reports on any of the matters as and when the recommendations are finalised," the note stated.

The pay panel, while making its recommendations, will be required to keep in view the "economic conditions in the country and the need for fiscal prudence".

The rollout of the last pay panel, which was the 7th Pay Commission, had added a fiscal burden of Rs 1.02 lakh crore in FY17. The impact on the exchequer is expected to be sharper when the 8th Pay Commission is implemented.

The 8th Pay Commission will also "need to ensure that adequate resources are available for developmental expenditure and welfare measures", the Cabinet said.

The panel will also be required to take into account "the unfunded cost of non-contributory pension schemes", and the likely impact of the "recommendations on the finances of the state governments", the release added.

The state governments usually adopt the recommendations made by the central pay commissions with some modifications.

Furthermore, the 8th Pay Commission will also be required to consider the "prevailing emolument structure, benefits and working conditions available to employees of Central Public Sector Undertakings and private sector".

Notably, the central pay commissions are constituted once in a decade to explore various issues of emoluments structure, retirement benefits and other service conditions of central government employees.

Usually, the recommendations of the pay commissions are implemented after a gap of every 10 years. "Going by this trend, the effect of the 8th central pay commission recommendations would normally be expected from Jan. 1, 2026," the official release noted.

This suggests that even though the 8th Pay Commission will require 18 months to submit its report — and the same is expected to receive the Centre's nod in three to nine months — the salary and pension hike will come into effect retrospectively. In such a scenario, the employees and pensioners will be paid arrears from Jan. 1, 2026.

This was also the case with the 7th Pay Commission, when the salaries were rolled out from July 2016, but arrears were paid from January 2016.

The Centre had sought inputs from the staff side of National Council-Joint Consultative Machinery (NC-JCM) on the ToR back in January. The NC-JCM, which is the topmost forum representing central government employees and pensioners, had submitted its draft ToR to the Centre in January itself.

In the document, the forum said that the minimum salary should be calculated by considering the basic consumption needs of five members, instead of three at present, as taking care of aging parents is also an ethical and legal responsibility.

The staff side of NC-JCM also called for the merger of "unviable" pay scales, by combining level 1 with level 2, level 3 with level 4 and level 5 with level 6. This is necessary to prevent pay stagnation, which indirectly affects the Modified Assured Career Progression Scheme.

Notably, the formation of 8th Pay Commission has already been delayed as compared to the 7th Pay Commission. The latter was formed in February 2014, and it submitted its report after 18 months. The revised salaries were eventually rolled out in July 2016.

If one goes by a similar timeline, then the 8th Pay Commission may end up submitting its report in 2027. However, employee union leaders who spoke to NDTV Profit earlier said the pay panel may act in an expediated manner this time, in order to accelerate the rollout of the revised salaries and pensions.

Notably, the last pay commission had used a fitment factor of 2.57 to raise the salaries and pensions. This meant that the basic pay and the basic pension were multiplied with 2.57. However, since the dearness allowance and dearness relief were reset to zero, the effective hike was of around 23.5%.

This time as well, the DA and DR — presently standing at 58% of the basic wage — would be reset to zero once the 8th Pay Commission comes into effect.

The once-in-a-decade salary overhaul also has a fiscal impact, with the 7th Pay Commission adding a burden of Rs 1.02 lakh crore on the exchequer back in FY17. The impact is expected to be sharper when the 8th Pay Commission is rolled out.

Despite the fiscal burden, the rollout of pay commissions are seen positively from an economic prism, as the rise in disposable income provides a boost to consumption.