Union Budget 2018 - 7th Pay Commission’s Recommendation

The 7th Central Pay Commission set up by the central government recommended various measures to improve the pay bands and grade pays of central government employees across the country. The recommendations of the pay commission were filed in a report to the government in November 2015. The commision has recommended increasing the minimum pay of central government employees to Rs.18,000 per month with effect from January 2016. With the Union Budget 2018 nearing its announcement, the finance ministry is expected to make its statement on salary hike and arrears payment.

The good news here is that the government has reportedly decided to increase the salary of low-level employees beyond the commission’s recommendation. However, this is expected to come with a catch. Many sources inside the finance ministry reveal that the government is not likely to pay the arrears amount for its employees. Sources also reveal that the salary hike will be paid to employees from April 2018 onwards. Moreover, it is yet to be revealed whether the government has raised the basic pay or the fitment factor.

Expectations of Employees

One of the key recommendations of the 7th pay commission is to increase the maximum pay of employees from Rs.90,000 to Rs.2.5 lakh. The commission also recommended a fitment factor of 2.57 times over the basic pay recommended by the 6th pay commission. Though the salary hike recommendation was significant, it raised the pay gap (between maximum pay and lowest pay) from 1:12 to 1:14. Following this, central government employees demanded that their minimum pay must be increased to Rs.26,000 along with a fitment factor of 3.68 times.

What to expect from Union Budget 2018?

Sources close to the finance ministry reveal that the government is willing to provide a salary hike higher than the commission’s recommendations. The salary hike, however, is expected to be increased only for central government employees at the lower level. In his budget speech, finance minister Arun Jaitley is expected to announce this decision by the government. This move by the government focuses mainly on bringing down the pay gap dispute between the lowest and the highest pay recommended by the pay commission.

Issues regarding arrears payment

The 7th pay commission has recommended the salary hike with effect from January 1, 2016. Though the government is mulling to provide salary hike beyond the recommended level, sources say that the government may not be able to pay the arrears payment for its employees. Despite the pay hike, this will be a big setback for employees. The expenditure budget of the government is already under pressure with allocations for various government spending. In this scenario, the finance ministry is not likely to burden the exchequer with additional demands for arrears payment. We would be able to get more clarity on this issue only after the announcement at Union Budget 2018.

The current year’s budget is expected to be different from Union Budget 2017, especially after the structural reforms implemented in the taxation process. The government is already under stress to increase its revenues to cater to the needs of higher expenditure. It is expected that the government’s expenditure budget will be increased in the current year to promote growth in various sectors. If the government wants to keep the fiscal deficit under control, it cannot the increase the expenditure beyond a certain limit. This year’s budget is expected to take all these factors into consideration and come up with a balanced pay allocation for employees.