8th Pay Commission: QuantEco Research pegs fiscal cost at Rs 2-2.5 trillion
The government announced the 8th Central Pay Commission in January this year, but there has been no progress since. QuantEco Research thinks that the fiscal impetus to growth that was being tentatively projected in FY26, will get deferred to FY27 or FY28.
Kolkata: The fiscal cost that the Centre has to bear following the 8th Central Pay Commission could be between Rs 2 to Rs 2.5 trillion, QuantEco Research has said. The economic research agency has said in a note the increased pay following the CPC could have triggered a rise in consumption, which will not get deferred due to the delay. The terms of reference of the CPC is yet to be announced. Incidentally, 44 lakh employees and 68 lakh pensioners are supposed to benefit from the 8th Central Pay Commission.
"The delay in the 8th CPC payouts, will mean that the fiscal impetus to growth which we were penciling in for FY26, is likely to get pushed to FY27 and early FY28. Historically, it is seen that lump-sum payouts with arrears propels urban discretionary consumption. This is a classic real-world application of Engel's law. Household spending is biased towards greater purchases of big-ticket goods such as cars, consumer electronics, and services such as air travel. As a corollary, a part of the increase in disposable incomes, will also make its way into savings -possibly bank deposits and equity investments," QuantEco research has observed in a note.
On the topic of mobilising resources, QuantEco said that the delay offers the government an opportunity to push through pending GST reforms. "GST reforms truly have the potential of structurally improving India's tax revenue-to-GDP ratio in the coming years," mentioned the agency.
Timeline of past Pay Commissions
First Pay Commission: Constituted in 1946
Second Pay Commission: Constituted in August 1957; 2 years to submit report
Third Pay Commission: Constituted in April 1970; 3 years to submit report
Fourth Pay Commission: Constituted in June 1983; Phased out over 4 years
Fifth Pay Commission: Constituted in April 1994; Report submitted in January 1997
Sixth Pay Commission: Constituted in October 2006; 1.5 years to submit report
Seventh Pay Commission: Constituted in February 2014; 21 months to submit report
Fitment factor and Real Increase in the past
First Pay Commission
Second Pay Commission: Fitment Factor 1.45; Real Increase 14.2%
Third Pay Commission: Fitment Factor 2.45; Real Increase 20.6%
Fourth Pay Commission: Fitment Factor 3.83; Real Increase 27.6%
Fifth Pay Commission: Fitment Factor 3.40; Real Increase 31.0%
Sixth Pay Commission: Fitment Factor 2.75; Real Increase 54.0%
Seventh Pay Commission: Fitment Factor 2.57; Real Increase 14.3%
Eighth Pay Commission: Fitment Factor 2.0 (approx); Real Increase 14.3-20.9% (QuantEco estimate)