NEW DELHI: The government announced the setting up of the Seventh Central Pay Commission (CPC) ahead of elections, heralding the prospect of salary increases for nearly 80 lakh employees and pensioners, although the actual revisions will take about three years or so and could put finances under strain at the time.
"The average time taken by a Pay Commission to submit its recommendations has been about two years. Accordingly, allowing about two years for the 7th CPC to submit its report, the recommendations are likely to be implemented with effect from 1.1.2016," Finance Minister P Chidambaram said in a statement issued by the government on Wednesday.
The Sixth Pay Commission came into effect on January 1, 2006. Prime Minister Manmohan Singh has approved the constitution of the Seventh Pay Commission, Chidambaram said in the statement. The commission's terms of reference and its members will be announced later. Five state governments go to the polls in November while general elections are expected to be held in May next year.1
The government constitutes a pay commission almost every decade to revise the pay scales of its employees, who get an inflation-linked dearness allowance twice a year but no salary revisions as in the private sector.
State governments usually adopt the recommendations after suitable modifications. The commission award tends to impose a significant burden on government finances.
Central government spending on salaries and allowances of just the civilian employees (those who don't belong to the defence services) rose nearly 40% in 2008-09 after the Sixth Pay Commission award from a year before.
The higher spending came just as the global financial crisis broke, forcing the government to announce measures to prop up growth. The fiscal deficit rose to 6% in 2008-09 and 6.5% in 2009-10 from 2.5% in 2007-08, a slippage the government has still not managed to rein in. Chidambaram last year announced a road map to trim the fiscal deficit to 3% of GDP in 2016-17.
Although higher salaries will mean more disposable income in the hands of government employees, the pay commission award could burden government finances and push back the fiscal recovery.
"No doubt, the Seventh Pay Commission will lead to demand increase in the economy, but it will lead to consumption-led and not investment-led growth," said Devendra Kumar Pant, chief economist, India Ratings. "If in 2.5 years, the economy does not recover, in terms of growth and fiscal deficit, it will be a big load for the centre and states."
Trade unions welcomed the constitution of the commission but demanded that they be set up every five years. Congress party general secretary in charge of communication Ajay Maken welcomed the setting up of the pay commission on Twitter. "The government should attract best of talents...Pay commissions help in attracting and also retaining best available talents," Maken said.
Planning Commission member Arun Maira said at a Ficci seminar in Kolkata: "All government employees will want it while others may not... This is a big election force... It is an interesting situation since it is election time."
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