The Cabinet has greenlit the 8th Pay Commission, setting the stage for a revision of salaries of central govt employees
The Union Cabinet’s approval of the 8th Pay Commission ahead of the budget marks a significant step toward revising the salary and pension structure for over 49 lakh central government employees and nearly 65 lakh pensioners. Chaired by Prime Minister Narendra Modi, the decision emphasises improving quality of life and stimulating economic activity through enhanced consumption. The 8th Pay Commission will be tasked with revising salaries, allowances and pensions for central government employees and pensioners. Consultations will be held with central and state governments and other stakeholders before finalising its recommendations. The Commission’s chairman and two members are to be appointed shortly, and its findings will replace the existing 7th Pay Commission framework, whose term ends in 2026. Historically, pay commissions are constituted every decade to address inflation, economic growth and employees’ changing financial needs. Prime Minister Modi underscored that the revised pay structure will boost consumption by increasing disposable incomes. Higher salaries and pensions are expected to lead to increased spending on goods and services, driving demand in sectors such as retail, real estate, and automobiles.
This consumption surge could further stimulate production and employment, creating a positive feedback loop in the economy. The Commission’s recommendations are expected to address the rising cost of living and improve the financial wellbeing of central government employees and pensioners. While the revisions will inject liquidity into the economy, they will also impose a significant financial burden on the exchequer. Increased salary outlays may necessitate budgetary adjustments, potentially impacting allocations for other sectors like infrastructure and welfare. Although PSU and state government employees are outside the direct purview of central pay commissions, the 8th Pay Commission’s recommendations often set a benchmark. Many state governments and PSUs align their pay scales with central government standards, amplifying the financial impact across the broader public sector. This could also have adverse effect on the economy. Higher disposable incomes could lead to demand-pull inflation, particularly in essential goods and services. Managing inflation will require a balanced monetary policy. Besides, the exclusion of PSU employees and ‘gramin dak sevaks’ from central pay commission benefits may intensify demands for similar revisions, potentially leading to unrest and political pressure. Increased spending on salaries and pensions may constrain the government’s ability to invest in capital-intensive projects, potentially slowing long-term economic growth. Despite challenges, it can serve as a catalyst for the economy by generating demand and boosting production.
