According to convention, the government sets up a pay commission every ten years and the last pay commission's suggestions were implemented from 2006.
"Allowing about two years for the 7th CPC to submit its report, the recommendations are likely to be implemented with effect from January 1, 2016," finance minister P Chidambaram said in a statement.
Although dearness allowances of government staff are raised in tandem with CPI inflation every six months to compensate for the rising cost of living, the Centre revises the salary base once in a decade. Following the recommendation of sixth pay commission, the government trebled salaries of its staff and restructured the pay bands that raised its salary bill by around Rs 8,000 crore annually apart from a one-time arrear payment of Rs 18,000 crore in 2008-09.
Since the implementation of the sixth pay commission recommendations, the salary bill of centre has more than doubled from about Rs 46,000 crore in 2007-08 to Rs 1.15 lakh crore in 2013-14 while that for states rose from Rs 1.36 lakh crore to Rs 2.86 lakh crore. In Centre's case, the implementation of the sixth pay commission's recoemmndation raised the share of salary bill in total expenditure from 6.4% in 2007-08 to 7.7% in 2012-13.
A rising salary bill had also worsened the fiscal situation of some of the states.
Prior to the sixth pay commission, salaries of public sector employees were raised by almost three times each in 1986 and 1996 following the suggestions of fourth and fifth pay panels, respectively.
Even though the government spending on pay and allowances have increased significantly, the salaries of top officials in the public sector are still much lower than those offered by private firms. The salary of the top most bureaucrat -- cabinet secretary -- was fixed at Rs 90,000 per month in 2006, which may be many times less than what a CEO of a blue-chip company drew at that time. However, the basic salary of the lowest rank staff was about Rs 4,440 per month in 2008, which was many times higher than what private sector paid.
The case of a hefty salary hike also comes amid rising inflation in recent years.
The consumer price inflation has stayed near 10% for more than two years and has been eroding the annual increment of workers.