The seventh pay commission headed by justice (retired) AK Mathur, presented its 900-page report to finance minister Arun Jaitley. Commission has recommended an average 23.55% increase in salary of central government employees, allowances and pension.
This move will benefit 4.8 million staffers and 5.5 million pensioners. A minimum pay of Rs 18,000 per month and a maximum of Rs 2.5 lakh has been recommended by the commission.
The hike will be effective from January 1, 2016.
Expected Effects of the decision
- More cash in hand is likely to result in higher consumption by the government’s massive employee base, which accounts for a large segment of the Indian middle-class.
- More demand could boost the economy through higher spending on assets such as cars and housing.
- Economists has said that while the move will have budgetary implications, it will act as a “stimulus”.
- The development is expected to boost economic growth. If monsoon remains normal next year, then it will boost and create conditions for revival of private consumption.
Other Important recommendations by the report
- Recommendations will impact 47 lakh serving govt employees, 52 lakh pensioners, including defense personnel.
- The rate of annual increment retained at 3per cent.
- A fresh IAS recruit will get a basic salary of Rs 56,000 a month against Rs 23,000 currently, while a Sepoy in the Indian Army will earn Rs 21,700 per month from Rs 8,460 currently.
- If accepted, the new proposals will set Rs 18,000 as the minimum pay of an employee on the central government’s rolls. At present the minimum salary is Rs 7,000.
- 24 per cent hike in pensions.
- One Rank One Pension proposed for civilian government employees on line of OROP for armed forces
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Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh.
[The general meaning of Gratuity is – “a favor or gift, usually in the form of money, given in return for service.’ In employment terms, Gratuity Benefit amount is similar to a bonus, meaning that it is a portion of your salary provided to you, by your employer, for the services rendered on the company’s behalf. Gratuity is a reward for your long and meritorious service.”]
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Ceiling on gratuity to be raised by 25 per cent whenever DA rises by 50 per cent
[The Dearness Allowance (DA) is– “a cost of living adjustment allowance paid to Government employees, Public sector employees (PSU)and pensioners in Bangladesh and India. Dearness Allowance is calculated as a percentage of an Indian citizen’s basic salary to mitigate the impact of inflation on people.”]
- The commission has also made performance parameters for Modified Assured Career Progression (MACP) more stringent. It has been benchmarked from “good” to “very good” while those who are unable to meet the benchmark will not be granted the annual increment.
- Cabinet Secretary to get Rs 2.5 lakh as against Rs 90,000 per month pay band currently.
- Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances or in newly proposed allowances.
Recommendations for army personnel
- Military Service Pay (MSP), which is a compensation for the various aspects of military service, will be admissible to the defense forces personnel only.
- MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-combatants to Rs 3,600 from Rs 1,000
- Short service commissioned officers will be allowed to exit the armed forces at any point in time between 7 to 10 years of service
Impact on Governments Expenditure
Since the government’s overall expenditure will increase, its fiscal deficit – the difference between what it earns and spends – will also widen by 0.65 percentage points and likely make an impact on the deficit-reduction target of 3.5% for the next financial year (2016-17).
The seventh Pay Commission
The previous United Progressive Alliance (UPA) government appointed the Seventh Pay Commission on February 28, 2014. The central government constitutes the pay commission every 10 years to revise the pay scales of its employees and these are usually adopted by states after some modifications.
