8th Pay Commission: Salary Hike Of 13% Likely, Fitment Factor Lower Than 7th CPC, Says Kotak Report

The effective salary hike for central government employees under the 8th Pay Commission is likely to be of 13%, which will be lower than around 14.3% under the 7th Pay Commission, according to a report released by Kotak Institutional Equities on Monday.

The fitment factor, which is the multiplication unit recommended by the commission, is expected to be "1.8", the research report stated. This would be around 30% lower than the 2.57-fitment factor recommended by the 7th Pay Commission.

While the 1.8-fitment factor suggests that the existing basic salary would be raised by 180%, the effective salary hike is lower as the dearness allowance—presently at 55% of the basic pay—would be reset to zero.

Members of the staff side of National Council-Joint Consultative Machinery—an official forum representing central government employees and pensioners—told NDTV Profit earlier that their demand would be to seek a fitment factor that is "at least same" as under the 7th Pay Commission. However, they indicated that the fitment factor which may eventually get recommended could be lower.

1.8 As Fitment Factor: How Salaries Will Rise

The minimum basic salary, currently at Rs 18,000, could rise to around Rs 32,000 if 1.8 is recommended as the fitment factor. However, the pay growth in real terms would be much lower, of around 13%, if one takes into account the DA and other allowances which are added to the current basic pay.

The minimum pay of Rs 18,000 is presently supplemented with a DA of Rs 9,900.

Similarly, if the basic salary currently stands at Rs 50,000, then the same may rise to Rs 90,000. However, the effective growth in wage would be lower as the salary of Rs 50,000 currently has a DA component of Rs 27,500 added to it. This takes it to Rs 77,500, excluding some of the other allowances.

The DA, hiked at every six months, is expected to cross 60% of the basic salary by the time the 8th Pay Commission is implemented.

Notably, pay commissions are formed once in a decade by the central government to overhaul the salaries of employees and pensions of retirees. The implementation of 7th Pay Commission had an estimated burden of Rs 1.02 lakh crore on the exchequer in fiscal year 2017.

The 8th Pay Commission may cost a burden of Rs 2.4-3.2 lakh crore, according to Kotak Institutional Equities.

"We expect the 8th CPC to directly impact 3.3 mn central government employees, similar to 7th Pay Commission... The bulk of the benefit will accrue to employees in Grade C, who constitute almost 90% of the central government workforce and may have a higher marginal propensity to consume," it further said.