7th Pay Commission report: Singns of the implementation of the 7th Central Pay Commission (CPC) recommendations are now becoming visible. However, there still exist issues in terms of disbursement of arrears and allowances. The 7th Pay Commission is expected to benefit over 1 crore employees with an additional financial impact of Rs 1,02,100 crore on account of implementation of all its recommendations in 2016-17. Further, an additional implication of Rs 12,133 crore will be there on account of payments of arrears of pay and pension for 2 months of 2015-16.
“It has been observed that the implementation of the commission’s recommendations earlier was very time-consuming. However, the 7th CPC recommendations have been implemented within six months from the due date. On the other hand, the key aspect is that how efficiently and timely the disbursements of the allowances are being made to the Central employees. Generally, when Central Pay Commission is implemented, it takes about two years for the disbursement of all allowances,” says Dr S.P Sharma, Chief Economist, PHD Chamber of Commerce & Industry.
Implementation of the 7th CPC have come into effect since Jan 2016 and are presently running in the second year. It is expected that all the disbursements will be made gradually by the Central government by the end of this year. It is also anticipated that the additional income in the hands of Central employees may give a boost to consumer goods manufacturing coupled with good monsoon season as forecast by the India Meteorological Department (IMD), favourable inflationary scenario and GST implementation leading to reduced inputs costs in the coming times. In a nutshell, “with timely disbursements of allowances to employees, it is expected that the demand and consumer spending in the economy will be boosted and likely to witness a huge push in terms of manufacturing activity, creation of jobs, revenue generation and would boost the overall growth sentiments, going ahead,” says Sharma.
As per the 7th CPC, the present system of Pay Bands and Grade Pay has been dispensed and a new Pay Matrix has been introduced. In this regard, separate Pay Matrices have been drawn up for Civilians, Defence Personnel and for Military Nursing Service. The CPC has introduced index of rationalisation for arriving at minimum pay in each Level of the Pay Matrix, depending upon the increasing role, responsibility and accountability at each step in the hierarchy. In this context, CPC has enhanced the minimum pay from Rs 7000 to 18000 per month and the starting salary of a newly-recruited employee at lowest level is now Rs 18000 whereas for a newly-recruited Class I officer, it is Rs 56100.
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Under the 7th Central Pay Commission (CPC), the salaries of the employees are obtained by multiplying the existing basic pay by a factor of 2.57 and the figure so arrived will be added to all the applicable allowances such as Transport Allowance (TA), House Rent Allowance (HRA), Medical Allowance, etc.
A hypothetical example of calculating an employee’s salary as per 7th CPC is illustrated below:
A. Basic pay of an employee as on 1st January 2016 is Rs 10,000
B. Multiply basic pay by 2.57 fitment factor = Rs 10,000 x 2.57 = Rs 25,700
C. Addition of TA, HRA, medical Allowance as applicable to the amount Rs. 25,700
D. New Pay = (Basic pay (as on 1st Jan 2016) x 2.57)+ All Allowances
Going ahead, “disbursement of allowances may have an effect on aggregated demand in the economy and will trigger higher consumption. In addition, as household income expands, savings of the employees will expand too. However, the government’s fiscal deficit is likely to be impacted as they have to accommodate the increased salary and pension payments. In overall, pay hike is a kind of stimulus to the economy which will lead to push demand and consumer spending in the coming times,” says Sharma.