The 7th Pay Commission

Compilation by Manven Dubey

 7TH PAY COMMISSION

 The government of India has initiated the process to constitute the 7th
Pay Commission along with the finalization its terms of reference.

 On September 25, 2013 the finance minister P Chidambaram announced

that the Prime minister Manmohan Singh has Approved the constitution
of the 7th pay commission.

 Its recommendations are likely to be implemented with effect from

January 1, 2016.

 Justice A. K. Mathur will be heading the 7th Pay Commission,

announcement of which was done on 4th February 2014.

 The total increase will be 23.55% of the Gross salary (Basic+ DA+
Allowances)
GROSS IMPACT
 Implementation of the Seventh Pay Commission
recommendations will have a positive impact on stock
markets and also on consumption growth

 GDP (market prices) growth is likely to recover to 7.3% + in

2016 from 7.2% in 2015, with the recovery being largely
consumption-led.

 The small concern could be that this may push inflation a bit
higher.
IMPACT ON GOVT TAX KITTY

 7CPC recommendations will boost consumption by Rs

451.1bn (0.30% of GDP) and increase savings by Rs 307.1bn
(0.20% of GDP), says India Ratings and Research (Ind-Ra).

 It is estimated that after the sharing of central taxes with the

state governments, the central government’s net tax revenue
will increase by Rs 141bn (0.09% of GDP) in FY17.
 PAP TO GDP RATIO

Pay, Allowances and Pension (PAP) spending constitutes around 2.8 percent
of GDP. Additional expenditure, that includes all recommendations, will lead
to an increase in 0.65 per cent of GDP on PAP, which is less than 6th PC,
which led to an increase in 0.77 per cent of GDP on PAP.
PERFORMANCE LINKED ?

 Minimum salary recommended is higher than the minimum

wages in private sectors – where output and performance is
demanded.

 Government employees salary rise without improvement in

services draw criticism and undue pressure on private
employers

 Private under compulsion has to increase wages which results

into disadvantage under global competiveness
CENTRAL GOVT EMPLOYEES RATIO
 The Central Government employed 8.5 per cent of the organized
workforce in 2012. Its share in organized sector has declined over the past
15 years
INFLATION FACTOR

 Govt Employees have Dearness Allowance (DA) as one

component of their salary. Which is linked to the
inflation.

 Govt employees’ yearly increment is fixed and not

linked to performance as in case pvt sector.

 These 8.5% employees have another advantage of time

bound promotion.

 Their purchase power is protected.

SALARY TO PENSION RATIO
 As of 2014-15, 7.8 per cent of total expenditure is spent on salaries and 4.6
per cent of total expenditure is spent on pensions.
 Pension burden is increasing every year as new retired employees are
added. This is non productive liability on exchequer.
WHAT IS DESIRED ….?

 Pay commission should have an objective to make

government employees accountable.

 Increment and promotions should be linked to

performance instead of time.