7th Pay Commission in India [ Detailed Analysis - Economics ]

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The Government of India has introduced 7th Central Pay commission. Former Finance minister P Chidambaram had announced approval of 7th Pay Commission by former Prime Minister Manmohan Singh on 25th September 2013, which was intended to come into effect from 1st January 2016. On 4th February 2016, it was announced that Justice Ashok Kumar Mathur is the chair of the 7th Pay commission. They submitted 7th Pay commission recommendation during November 2015 and since then it was under the review of Ministry of Finance. Government has accepted 7th pay commission report on 29th June 2016 with 14% increase in salary after six month of intense evaluation and successive discussions.

Highlights of 7th Central Pay Commission as Announced by Finance Minister Arun Jaitely

  • Minimum Salary of Central Government employees 18,000 (previously it was 7,000).
  • Maximum Pay will be Rs 2, 25,000 per month for Apex Scale and Rs 2, 50,000 per month for Cabinet Secretary and others presently at the same pay level.
  • Fitment Factor = 2.57 across all pay grades
  • Yearly increment rate same as 3% before
  • House Building Advance now Rs 25 lakh from Rs 7.5 Lakhs
  • Increase Gratuity to Rs. 25 Lakhs from 10 Lakhs

Gratuity is a collectable amount for an employee, paid as gratitude by the organization, for an individual who has worked in an organization for a minimum of 5 years. It is also known as end of service benefits.  We can calculate gratuity based on average salary, DA, and number of years worked.

Basis of the 7th Pay Commission

  • Dr. Wallace Akroyd 
  • 15th Indian Labour Conference (ILC) 1957 Norms  

About Dr. Wallace Akroyd 

  • First director of the Department of Nutrition at Food and Agricultural Organization (FAO)
  • In 1935, he was appointed director of the government’s nutritional research center at Coonoor in Kerala, India.
  • Laid forward the food requirement for Indian adult
  • Need-Based Minimum Wage concept to compute pay at the minimum level

15th Indian Labour Conference (ILC) 1957 Norms

  • Standard working class family to be taken as 3 consumption units for one earner, which is two adults and two children.
  • Minimum food requirement to be taken as a balanced diet of 2,700 calories per day per consumption unit;
  • Clothing requirement to be fixed as per capita consumption of 18 yards per annum, which gives 72 yards per annum for the average worker’s family;
  • For housing, the rent corresponding to the minimum area provided for under the government’s industrial housing schemes should be taken
  • Fuel, lighting, and other items of expenditure should constitute 20 per cent of the total minimum wage. 

Impact on government Finances

  • 0.65% of GDP due to pay hike (Less the 6th Pay Commission 0.77%)                
  • 0.46% of GDP impact on Union budget and net taxes will be 0.4 of GDP (assuming an average tax rate of around 20 per cent on government pay).

Summary of 7th Pay Commission

Summary of 7th Pay Commission

Table showing the Summary of 7th Pay Commission

7th Pay Commission Pointer

Explanation

 

Increment effective date

1st January 2016

Arrears payout

Arrears will be counted from 1st January 2016 and it will be paid to employee within this year by government

Military service pay

Military service pay: 

  • INR 1,000 has become INR 3,600.
  • INR 2,000 has become INR 5,200.
  • INR 4,200 has become INR 10,800
  • INR 6,000 has become INR 15,500.

Higher salaries equates to economic growth

Increase in salaries not helps increase economic growth.

Half-yearly and yearly increments

These increments were given to Central Government employees to link the market price or inflation.

The 7th Pay Commission includes

 52 such allowances + 36 allowances

As price-linked halt-yearly and yearly increments according to new rule.

Compensation

The Union Cabinet has approved the increase in military service pay as well as ex-gratia compensations that were made in lump sum have also been increased.

Burden on government

The increments will put extra burden of INR 1, 02,100 crores.

Last major hike

In 2008 the last major hike in salary of Central Government employees took place with 50% hike.

0.7 % of GDP

The extra money will be accounted as 0.7 of total GDP or Gross Domestic Product of India.

Burden on Government explained

Burden on Government explained

Burden on Government explained

Various Pay Commissions

Various Pay Commissions

Pay Commission

Established

Implemented

Chairman

Financial Impact

Details

First

January 1946

 

May 1947

 

Srinivasa Varadachariar

 _

Formed during Interim government of India

Second

August 1957

1959

Jagannath Das

₹ 39.6 crore

Recruiting minimum qualification persons to  ensure efficient functioning of the system

Third

April 1970

 

March 1973

Raghubir Dayal

₹ 144 crore

Introduced 3 concepts for pay structure:

inclusiveness

comprehensibility

adequacy

Forth

June 1983

March 1987

P N Singhal

₹ 1282 crore

Introduce ‘Rank Pay’ concept for armed forces officer

What is Expected?

What is expected in pay commission

What is expected in pay commission

What is expected in pay commission

  • The 7th Central Pay Commission came with many benefits for millions of government employees in India, but it can lead money driven inflation for the short term because of high disposable income.

- Published on: September 22, 2016