The much talked about and the much awaited recommendations of the seventh Pay Commission have been declared. The 7th Central Pay Commission, headed by justice A K Mathur, submitted its report for recommendations to Finance Minister Arun Jaitley. If passed, these recommendations are surely going to bring a smile on the faces of all government employees. Let us have a look at what these recommendations have in store for the government employees.
- The basic salaries of all the current 47 lakh government employees will increase by 16%. The allowances will be raised by 63%. Overall, the hike in the salaries would be 23.55%.
- The minimum salary of any central government employee has been fixed at Rs. 18,000 and the maximum for employees in the highest scale has been fixed at Rs. 2.25 lakh. The salary for the cabinet secretary (or the highest-ranking civil servant) has been fixed at Rs. 2.5 lakh per month.
- The House Rent Allowance (HRA) has been increased by 139%. However, 52 allowances have been revoked and 36 allowances have been included in the existing or the newly proposed allowances.
- The pensions of the 52 lakh retired employees will increase by 24%.
- The government employees will get an annual increment of 3%. The panel has also recommended the removal of grade pay and pay band for all central government employees. A fitment factor of 2.57% applied uniformly for all the employees has also been suggested.
- Ceiling on gratuity has been increased from Rs. 10 lakh to Rs. 20 lakh. The ceiling on gratuity to be increased by 25% and DA by 50%.
- A system on the lines of One Rank One Pension (OROP) for armed forces has also been recommended for central government employees.
- Military Service Pay (for armed forces) for service officers has been increased to Rs. 15,500 per month. Short service commissioned officer will be permitted to quit the armed forces at any point between 7 to 10 years of his service. Uniform retirement age for all paramilitary forces for 60 years has also been recommended.
- A new health insurance scheme has also been proposed. Several steps for the improvement of the New Pension Scheme (NPS) have been recommended.
- The 7th Pay Commission will be applicable from 1 January, 2016.
Some more highlights of the 7th Pay Commission
- The 7th Pay Commission is increasing the salaries by 23.55% as compared to the 35% increase after the implications of 6th Pay Commission.
- The minimum wage has been increased to Rs. 18,000 from the current Rs. 7,000. The maximum salary has been fixed at Rs. 2.25 lakh from the current Rs. 80,000. The salary for the apex scale has been increased from Rs. 90,000 at present to Rs. 2.5 lakh.
- The financial impact of the implication of these recommendations would be Rs. 1.02 lakh crore, out of which Rs. 73,650 crore will be borne by the Central Budget and Rs. 28,450 will be borne by the Railway Budget.
- Military Service Pay (MSP), which is the compensation given for various aspects of military service, has been doubled from the current Rs. 6,000 to Rs. 15,500 per month.
- The ratio of expenditure on salary and wages to GDP will be impacted by 0.65% as compared to 0.77% in the 6th Pay Commission.
- The launch of a new pay matrix will bring a change in the status of the employee, which will now be determined by his level in the pay matrix and not by pay bands and grade pays.
- There will be separate pay matrices for civilians, defence personnel and military nursing service.
The following will be the financial impact after the implementation of the 7th pay Commission.
|2016-17 (Without VII CPC)||2016-17 (With VII CPC)||Financial Impact||Percentage Increase|
|All figures in Rs crore except for percentage increase|
Implications of the 7th Pay Commission
The 7th pay commission is likely to impact the government expenditure and budget, but it is also likely to bring a change in the financial conditions of the government employees too. Higher salary will mean more cash in hand, which is likely to increase the consumption by the government’s employee base. As per financial experts, the implementation of the 7th Pay Commission will bring an increase in the sales of auto and FMCG products. As per Credit Suisse, the 7th Pay Commission report makes 25% central and 20% state government employees eligible for buying cars. Hence, this can give a boost to the automobile industry.
According to latest reports, the Union Cabinet has approved the recommendations of the Seventh Pay Commission.
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