7th Pay Commission: Pay hike cheer for govt employees

Basic salary, pension to increase 2.5 times; Cabinet defers decision on allowances

The Cabinet on Wednesday approved recommendations of the Seventh Pay Commission on pay and pensions in a decision that will boost consumption by putting extra disposable income in the hands of the central government’s 4.7 million employees and 5.3 million pensioners.

On an average, the hike in basic pay and pension will be 2.5 times the existing structure. However, the existing dearness allowance will merge with the basic pay.

This could revive demand in a struggling economy but could also lead to inflation, prompting Finance Minister Arun Jaitley to call the impact of the decision “a mixed bag”.

The Cabinet, however, deferred a revision in allowances. A committee headed by Finance Secretary Ashok Lavasa will look into recommendations in this regard because there was resentment among employees over suggestions to scrap four allowances. Till then, the existing allowances will continue.

Jaitley said the panel would be given four months to look into the recommendations on allowances and then the government would take a call. There would be no clarity on when the allowances would be revised till the panel studied the recommendations, he said.

The pay panel had recommended abolishing 52 allowances altogether and subsuming another 36.

“We have accepted the Seventh Pay Commission’s recommendations on salaries and pensions,” Jaitley told reporters in a post-Cabinet briefing.

The commission had recommended a 23.5 per cent increase in pay, pension and allowances. It had envisaged an increase in pay of Rs 39,100 crore, increase in allowances of Rs 29,300 crore and increase in pensions of Rs 33,700 crore, taking the total annual impact to Rs 1.02 lakh crore.

The pay panel revisions are in force retrospectively from January 1, 2016.

With the increase in allowances deferred the burden on the exchequer will be Rs 72,800 crore on account of salaries and pensions and over Rs 12,000 crore on account of arrears, aggregating Rs 84,933 crore during 2016-17.

Of this Rs 60,608 crore would come on the Budget and Rs 24,325 crore on the Railway Budget, Jaitley said. The burden on the exchequer on account of salaries and pensions will be around Rs 52,000 crore. Out of that amount, the Budget had factored in Rs 32,000 crore. So the rest will be sought in supplementary demands in the coming sessions of Parliament. The minimum pay, as cleared by the Cabinet, has been raised from Rs 7,000 to Rs 18,000 per month while the maximum pay has been capped at Rs 2.5 lakh per month. However, the Cabinet did not accept the panel’s recommendation to deduct Rs 1,500-5,000 from employees’ salaries for group insurance, Jaitley said. The department of financial services would study the issue and come out with suggestions, he added. In a presentation on the Cabinet decision, Lavasa said the rate of annual increment would be three per cent. Two committees will be set up to sort out administrative issues. One of them will look into anomalies and the other will suggest measures to streamline the pension system. To a query that the Cabinet decision would lead to consumption-led growth and trigger inflationary pressures, Jaitley said, “It is a mixed bag.” He said the fiscal deficit target of 3.5 per cent of GDP for 2016-17 will be maintained. Jaitley said when more money entered the system, its impact on inflation could not be ruled out. But it will also lead to a revival of demand and more savings will yield resources for national priorities.