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Role of Pay Commission in Wage Fixation

Role of Pay Commission in Wage Fixation

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Published by: deepankarrao on May 02, 2010
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Role of Pay Commission in Wage Fixation
Economy of India
Post Independence
The post independence period of economy of India was a litmus test for the economic
planners. Having come out of the shadow of colonial rule, the nation had a hu

ge challenge of undoing the exploitation of colonial era. The founding fathers had to use economic upliftment as a tool for nation building. The economy then was backward in nature.

Industry was characterized by ill equipped technology and unscientific management. Agriculture was still feudal in nature and characterized by low productivity. Transport and communication systems were not properly developed, educational and health facilities insufficient and the complete absence of social security measures.

Poverty was visible and unemployment widespread, resulting in a low standard of living. To guide the Indian economy towards a path of growth and development, the economic planners decided to adopt a course of mixed economy, assigning a vital role to public sector enterprises and economic planning. Private enterprise participation was negligible. A system of License Raj developed, by which entrepreneurs had to seek permission from government to set up manufacturing units. The government effectively controlled everything. During this period the banks were nationalized between late 1960's and early 1970's.

India resorted to economic planning by the way of five year plans for economic
Crisis In The Economy

The beginning of 1990\u00b6s, the Indian Economy was under great crisis and faced its stiffest challenge. India faced a serious balance of payment problem and foreign exchange reserves were at record low. That is when the government decided to alter the course of the Indian economy.

Post Reforms

The introduction of reforms in 1991 resulted in sweeping changes in the Indian Economy. The reforms process consisted of three processes, liberalization, privatization and globalization (LPG model). Under liberalization markets were deregulated, under privatization private participation was encouraged and many a public sector undertaking (PSU) were privatized and under globalization restrictions on foreign investments were removed. The Indian economy moved away from its isolation, to be integrated with the global economy and to competitively utilize its advantages to make rapid strides in terms of growth.

In India today 60% of the population is dependent directly and indirectly on
agriculture and agriculture contributes 17% of GDP.

The Industrial sector has witnessed massive restructuring by the way of mergers and acquisitions, process reengineering, foreign joint ventures, technological up gradation. Certain sectors like cement, steel, aluminium, pharmaceuticals, and automobiles have been witnessing unprecedented growth.

The service sector has been one of the major beneficiaries of the economic boom. The outsourcing industry comprising of IT and ITE\u00b6S became the new poster boy of the Indian economy. The huge pool of engineering talent was absorbed by the IT industry, while graduates could carve out a career in the ITE'S industry. The purchasing power of the booming middle class was enhanced, who went on a consumption spree, which in turn allowed the retail sector to flourish. The booming economy also created a wave of real estate boom across the country.

The supply of money into the economy has increased steadily due to FDI\u00b6s. (Between April 2008 and January 2009, India received total foreign investments of US $ 15,545 million).The Foreign Institutional Investors (FII\u00b6s) have invested heavily in the stock market, resulting in a continual bull run for an extended period of time. The BSE indices scaled a new peak of 21,000 in January 2008.


The Indian economy is one of the fastest growing economies in the world. It can also be said that the Indian economy has coped well to the pressures of the global recession, far better than most other nations. The future looks positive for India and one can expect the nation to progress strongly in the path of development.

Pay Commission
The Pay Commission is an administrative system / mechanism that the government of India
set up in 1956 to determine the salaries of government employees.
Pay Commission comprises of a panel of members of the Union Cabinet of India who
decide on and are responsible for increasing the salaries of government employees.
History of Pay Commission
After the Indian independence in 1947 there have been six pay commis

sions which have been set up in order to look into and recommend changes in the pay structure of all government employees.

First Central Pay Commission (1946-47)
The first pay commission was set up in May 1946 and it took a year to submit its report. The
chairman of the first pay commission was Srinivasa Varadachariar.

The First Central Pay Commission innovated the principle of "living wage" to Government employees. It observed that "the test formulated by the Islington Commission is only to be liberally interpreted to suit the conditions of the present day and to be qualified by the condition that in no case should be a man\u00b6s pay be less than a living wage." Amplifying the concept of "living wage", it stated that the Government which sponsored the minimum wage legislation for private industry must be willing to give the benefit of that principle to its own employees. In other words, that Commission was of opinion that the salary of the lowest paid employee should not be less than the minimum wage. While considering the question of maximum salary, the Commission agreed with the view that the State should compete with private enterprise in respect of prize posts; but expressed their inability to agree that the salaries of public servants could be reduced below the standard remuneration available to similarly situated employees in the private sector. The Commission recommended the principle that, as a matter of social policy, the lowest paid should not fall below the "living wage" (meaning thereby the minimum wage) and the top salaries should also as a matter of social policy be kept down to the extent possible without jeopardising the essential requirements of recruitment and efficiency.

Second Central Pay Commission (1957-59)

The second pay commission was constituted 10 years after independence in August 1957. It took two years to submit its report. The chairman of the second pay commission was Jaganath Das. The financial impact of the second pay commission was Rs 396 million.

The Second Central Pay Commission reiterated the principle that the pay structure and the conditions of service of Government employees should be so designed as to ensure recruitment of persons with requisite qualifications and ability at all levels and to maintain their efficiency. It went on to state that, after determining the minimum and the maximum

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