7th Pay Commission
- Recommended date of implementation is January 1, 2016
- Minimum monthly pay set at Rs 18,000
- Maximum monthly pay Rs 2.25 lakh (apex scale), Rs 2.50 lakh (Cabinet secretary and equivalent)
- Pay bands, grade pay abolished, new pay matrix designed
- Rate of annual increment retained at 3%
- Performance-related pay recommended for all categories
- Military service pay increased across board
- Short-service commission (SSC) officers exit at 7-10 years, with terminal gratuity equivalent of 10.5 months
- SSC officers entitled to a fully-funded one year Executive Programme/M.Tech
- Revised formulation for lateral entry/resettlement of defence forces personnel
- Parity recommended between field and headquarters staff for similar functions
- Systemic change in cadre review for Group A officers recommended
- Recommends abolishing 52 allowances altogether
- Another 36 allowances abolished as separate identities, but subsumed in existing allowances
- Allowances relating to risk and hardship to be governed by the proposed Risk and Hardship Matrix
- HRA recommended to be paid at the rate of 24%, 16%, 8% of new basic pay for class X, Y and Z cities, respectively
- HRA to be revised to 27%, 18%, 9% respectively, when DA crosses 50%, and further revised to 30%, 20%, 10% when DA crosses 100%
- Emphasis placed on simplifying the process of claiming allowances
INSURANCE SCHEMES AND MEDICAL FACILITIES
- Substantial increase for central government employees group insurance schemes’ monthly deduction and insurance amount.
- Introduction of a Health Insurance Scheme for employees and pensioners recommended.
PENSION, COMPENSATION AND GRATUITY
- Revised OROP-type pension formulation for civil, defence and paramilitary employees.
- Enhancement in the ceiling of gratuity from Rs 10 lakh to Rs 20 lakh.
- Recommends reverting to a slab-based system for disability element.
- Revision of rates of lump sum compensation for next of kin to be applied uniformly to defence, civil, paramilitary personnel.
- Paramilitary personnel to be accorded martyr status in case of death in line of duty.
- Strong pension grievance redressal mechanism recommended.
- Total financial impact for FY2016-17: Rs 1.02 lakh crore
- Impact on FY17 Union Budget: Rs 73,650 crore;Impact on Rail Budget: Rs 28,450 crore
- Overall increase in pay, allowances, pensions: 23.55 per cent
- Increase in pay: 16%; Increase in allowances: 63%, Increase in pension: 24%
- Expenditure-GDP ratio to be impacted by 0.65% points vs 0.77% for 6th Pay Commission.
WHY SEVENTH PAY COMMISION HIKE IS NOT WRONG:
- we want to run the government which comprises not just civil servants but the police, armed forces, nurses, doctors, regulators and academics — at all? Or have we persuaded ourselves that all of the government is simply money down the drain?
- The impact on the fiscal can be easily digested by the Indian economy. Yet, analysts warn of slippages in the fiscal deficit, a possible boost to inflation, and a setback to public investment.
- The pay hikes are modest embarrassingly so in comparison with pay increases and bonuses in the private sector.
Setting pay in government-
- The SPC’s figures don’t come out of nowhere. The Commission has a rigorous basis for setting pay in government. It arrives at a figure for minimum pay in government with reference to norms laid down by the 15th Indian Labour Conference (ILC) in 1957.
- The ILC had said that the minimum wage should cover the basic needs of a worker and his family, that is, a spouse, and two children who are below the age of 14. The SPC has spelt out the norms it has used for determining basic needs. It has gone by food requirements specified by a well-known nutritionist. The SPC report provides detailed computations for each of these items. No reasonable person can accuse the SPC of being overgenerous.
- Based on these norms, the SPC arrives at a minimum wage of Rs. 18,000 for a government employee.
- This is 2.57 times the minimum pay in the Sixth Pay Commission. The increase over the projected pay on the current basis as of January 1, 2016 is 14.3 per cent. This is the second lowest increase recommended by any Pay Commission since the first one, and it is way below the 54 per cent increase following the last one.
- In today’s context,. Pay in the private sector today is contributing towards massive inequalities in Indian society. Having a very different structure in government is a useful corrective to trends in the private sector. It will help contain tensions created by rising inequality.
- . First, the impact of the pay hike on the Central government (including the railways) will amount to 0.65 per cent of GDP. This is less than the impact of 0.77 per cent of GDP on account of the Sixth Pay Commission.
- Second, the impact on the Central government (excluding Railways), which is what matters when it comes to the Union budget, is 0.46 per cent of GDP. As some of the increase in salary comes back to the government as taxes, the impact, net of taxes, will be even less — say, 0.4 per cent of GDP (assuming an average tax rate of around 20 per cent on government pay). This is a strictly one-off impact. The correct way to view it, therefore, would be to amortise it over a period of, say, five years. The annual impact then is 0.08 per cent of GDP. The impact on the fiscal at the central level is barely noticeable.
- Even in terms of numbers-
- India’s central bureaucracy (including the Railways but excluding the armed forces) has neither been increasing in recent years nor hugely bloated in absolute terms. The number of employees grew to a peak of 41.76 lakh in 1994. It has declined since to 38.9 lakh in 2014. Of the total, 13.8 lakh is accounted for by security-related entities (police and defence civilians). Railways and Post, which perform commercial functions, account for 15 lakh personnel. There are other commercial departments as well, such as Communications. Excluding security and commercial functions, the total central employment is just 4.18 lakh. “The ‘core’ of the government…”, the SPC report notes, “is actually very small…”
- The SPC substantiates its point by comparing India’s Central government workforce with that of the federal government workforce in the U.S. In 2012, the non-postal civilian workforce in the U.S. was 21.3 lakh. In India, the corresponding figure in 2014 was 17.96 lakh. The number of personnel per lakh of population in India was 139 in 2014, way below the figure of 668 for the U.S. India’s bureaucracy needs not so much downsizing as right-sizing — we need more doctors, engineers, IT specialists, tax experts, judges, and so on.
- This time round, the Finance Ministry insists that it will stick to its fiscal deficit target for 2016-17 after providing for the SPC pay hike. If it does so, the reduction in fiscal deficit will be contractionary. Hence, the pay hike will not lead to economic expansion in the aggregate. However, greater income in the hands of government employees could favourably impact sectors such as the real estate, automobiles and consumer goods.