A big pay and pension hike that will benefit 47 lakh central government staffers and 53 lakh pensioners, and is also expected to spur demand and act as a stimulant for the economy was cleared by the Union Cabinet on Wednesday .
After taking into account dearness allowances at the prevailing rate, the salary and pension of all government employees will increase by at least 14.29% as on January 1, 2016, and could go up to 23% in upper brackets. The fiscal impact of the implementation of the Seventh Pay Commission's recommendation will be Rs.72,800 crore a year, and in the current fiscal year it is expected to be Rs. 84,933 crore.This includes the outgo on arrears with the implementation date being January 1, 2016.The government said it has planned for the outgo.
The Centre approved the recommendations of the Seventh Pay Commission on pay and pension, but deferred proposals on allowances that will be examined by a committee headed by finance secretary Ashok Lavasa. Pending the panel's decision, allowances will continue at existing rates. The pay commission called for scrapping of a large number of allowances, but employee unions had urged the government to review the recommendations.
Finance minister Arun Jaitley on Wednesday said the recommendations of the Seventh Pay Commission would be implemented with effect from January 1, 2016, and the arrears would also be paid in this year. The minimum pay has been increased from Rs.7,000 to 18,000 per month. Starting salary of a newly recruited employee at lowest level will now be Rs.18,000 whereas for a Class I officer it will be Rs.56,100. For a secretary level officer, the salary will increase from Rs.90,000 to Rs.2.25 lakh and for a cabinet secretary it will be Rs.2.5 lakh a month. The panel's recommendation of a fitment factor of 2.57 (the starting pay will be 2.57 times what was prevailing on January 1, 2006) will be applied across all pay scales. Gratuity ceiling has been raised from Rs.10 to 20 lakh.
The pay commission examined a total of 196 existing allowances and recommended that 51 of them be abolished and 37 be subsumed.
Lavasa said there was also a recommendation on so a recommendation on abolishing interest-bearing allowances. He said the government has accepted the recommendation of abolishing advances on motor cars and motorcycles, but interest-bearing house building loans and computers will continue.
The 7th Pay Commission headed by retired Justice A K Mathur had recommended a 23.55% increase in pay and allowances and a 24% rise in pensions for all central government employees. The increase of 23.55% included a 16% hike in basic pay and an increase of 63% in allowances. The pay panel is set up every 10 years. Jaitley said the pay commission had engaged IIM-Ahmedabad to compare the salaries of government employees and the private sector.
“Government salaries have to come up to a respectable level so that the government is able to attract the best talent. Not necessarily in civil services alone but also other services, and therefore irrevocable consequence of this would be a pressure on the Budget along with OROP recommendations,“ Jaitley said.