The Union Cabinet on Tuesday announced the formation of the 8th Pay Commission with Justice Ranjana Prakash Desai as its head.
The commission will submit its award report for the revision of pay, pension, and allowances for 11.9 million central government staff and pensioners by April 2027. This means the fiscal impact will be deferred to FY28, and beyond.
While the enhanced pay and pension award will be implemented retrospectively from January 1, 2026, with arrears paid when the government implements it in FY28, the allowances are likely to be implemented prospectively, saving a decent sum for the exchequer.
The pay, pension, and allowances of the central government amount to a whopping Rs 7 lakh crore for FY26, accounting for 18% of its revenue expenditure. The Central government staff allowances are estimated to be Rs 1.86 lakh crore in FY26.
Desai, a former Supreme Court judge, is chairperson of the Press Council of India. She headed the Delimitation Commission for Jammu & Kashmir.
Other members of the Commission are IIM Bangalore Professor Pulak Ghosh (part-time member) and Petroleum Secretary Pankaj Jain (member secretary).
The ToR, approved by the Cabinet on Tuesday, 28 October 2025, mandates the Commission to make its recommendations within 18 months of the date of its constitution. “It may consider, if necessary, sending interim reports on any of the matters as and when the recommendations are finalised,” the government said in a statement.
The 7th Pay Commission award was implemented within six months of the due date of January 1, 2016, with retrospective effect for pay and pension from January 1, 2016. However, allowances like house rent allowance (HRA) were implemented prospectively from July 1, 2017, after a gap of 18 months.
While making the recommendation, the Commission will have to factor in the economic conditions and the need for fiscal prudence; need to ensure that adequate resources are available for developmental expenditure and welfare measures; unfunded cost of non-contributory pension schemes; likely impact of the recommendations on the finances of the state governments which usually adopt the recommendations; and prevailing emolument structure, benefits and working conditions available to employees of Central Public Sector Undertakings and private sector.
The ToR has been finalised after consultations with various ministries, state governments and staff side of the Joint Consultative Machinery. The 8th CPC award will benefit around 5 million central government employees and around 6.9 million pensioners. Usually, the recommendations of the pay commissions are implemented after a gap of every ten years.
“The fiscal impact of the 8th Pay commission is likely to be largely seen in FY28, given that the recommendations of the pay panel are unlikely to come through before the FY2027 budget,” Icra chief economist Aditi Nayar said.
This would also imply arrears for the period starting from January 1, 2026 until the implementation, which could have a significant impact on the FY28 fiscal deficit, Nayar said.
The 7th Central Pay Commission award, which was implemented from January 1, 2016, granted a 23.55% increase in pay and pension, resulting in an additional annual outgo of Rs 1.02 lakh crore (0.65% of GDP in FY17). This made it challenging to reduce the fiscal deficit from 3.9% in FY16 to 3.5% in FY17.