The 7th Pay Commission report, if implemented, could inflate the Centre’s salary and pension bill by close to a quarter or slightly over Rs 1 lakh crore in FY17, in what could be a big consumption stimulus but one that could undermine the government’s ability to step up public spending given the stiff fiscal deficit target of 3.5% of GDP for the year. The commission proposed a new pay matrix, replacing the existing pay bands and grade pay, for the Centre’s 50 lakh employees and 54 lakh pensioners, with a monthly starting pay, inclusive of dearness allowance (DA), of Rs 18,000 a month and apex pay of Rs 2.5 lakh.
7th Pay Commission report says the starting pay is Rs 7,000 per month now and the the highest pay is Rs 90,000 (fixed) excluding the DA, which is 119% at present.
“In percentage terms, the overall increase in pay and allowance and pensions over the business-as-usual scenario will be 23.55%,” the SCPC report, submitted to the finance minister by its chairman justice AK Mathur on Thursday, said. Within this, says 7th Pay Commission report, the increase in pay would be 16%, in allowances 63% (with the sharpest hike of 138.7% in house rent allowance) and and in pension, 23.6%. Of the Rs 1.02 lakh crore additional expenditure needed, Rs 73,650 crore would be via the Union Budget and Rs 28,450 crore routed through the Railway Budget.
The Centre’s total salary and pension bill, including that of railway employees who account for more than a third of its salary expenditure, will go up from Rs 4.33 lakh crore estimated otherwise to Rs 5.35 lakh crore in FY17. Of the SCPC package, Rs 2.8 lakh crore would be as pay (including DA), up Rs 39,100 crore. Expenditure on pensions would increase Rs 33,700 crore to Rs 1.76 lakh crore in the year.
While the SCPC suggested abolition of the pay band and the grade pay introduced by the Sixth Pay Commission, it retained the annual increment of 3% and recommended a fitment factor of 2.57% that will be applied uniformly. The award will take effect from January 1, 2016. The government, sources said, is likely to announce the revised package in the next Budget, with retrospective effect.
The SCPC recommended an “equitable” pension, akin to one-rank-one-pension (OROP) announced for the armed forces, for civil employees including central armed police forces and defence personnel who retired before January 1, 2016. “This formulation will bring about complete parity of past pensioners with current retirees (for civilians those who joined service prior to January 1, 2004),” the report said.
7th Pay Commission report said all such retirees should first be fixed in the pay matrix being recommended by the SCPC, on the basis of the pay band and grade pay at which they retired, at the minimum of the corresponding level in the matrix. This amount should be raised, to arrive at the notional pay of the retiree, by adding the number of increments he/she had earned in that level while in service, at the rate of 3%. It said 50% of the total amount so arrived at shall be the revised pension. In the case of defence personnel, the total amount so arrived at will be inclusive of military service pay.
7th Pay Commission report also recommended enhancement in the ceiling of gratuity from the existing Rs 10 lakh to Rs 20 lakh. It said that as has been done in the case of allowances that are partially indexed to DA, the ceiling on gratuity may increase by 25% whenever DA rises by 50%.
On the contentious issues of bringing parity among civil services as IAS and IFS officers enjoy an edge in the current system, the commission members expressed different views. Justice Mathur said the two additional 3% increments being given to IAS over their basic pay at promotional stages be extended to the IPS and Indian Forest Service as well. Commission member Vivek Rae, a former IAS officer, did not agree with Mathur and said that the edge given to IAS was justified. Another member, economist Rathin Roy, sought the removal of the edge given to IAS and IFS officers.
Also, both Mathur and Roy recommended the two-year edge enjoyed by IAS for central staffing should be done away with to bring them on par with other Group A central services. Rae, however, did not agree.
In a largesse to the armed forces, the military service pay for service officers has been doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000; and for non-combatants to Rs 3,600 from Rs 1,000. Short-service commissioned officers will be allowed to exit the armed forces at any point in time between 7 and 10 years of service.
Analysts expressed concern over the inflation impact of the 7th Pay Commission report — most state governments are expected to follow the SCPC proposals. Together, states governments employ close to 1.2 crore people. The Reserve Bank of India has set a medium-term inflation target of 4% by March 2018. The increased revenue productivity from the higher economic growth and the ushering in of the goods and services tax would give the government a handle to recoup higher amounts as taxes. The Centre’s income tax collections could get a significant boost from the SCPC and the states could benefit too given that 42% of the Centre’s gross tax revenue needs to be shared with them.
All figures in Rs crore except for percentage increase