7th Pay Commission in India [ Detailed Analysis (CA/GS) - Economics ]
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).
Table showing the Summary of 7th Pay Commission
7th Pay Commission Pointer
Increment effective date
1st January 2016
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:
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.
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.
Formed during Interim government of India
₹ 39.6 crore
Recruiting minimum qualification persons to ensure efficient functioning of the system
₹ 144 crore
Introduced 3 concepts for pay structure:
P N Singhal
₹ 1282 crore
Introduce ‘Rank Pay’ concept for armed forces officer
What is Expected?
- 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