NEW DELHI: Ahead of elections, the government on Wednesday announced constitution of the Seventh Pay Commission, which will go into the salaries, allowances and pensions of about 80 lakh of its employees and pensioners.
"Prime Minister Manmohan Singh approved the constitution of the 7th Pay Commission. Its recommendations are likely to be implemented with effect from January 1, 2016", finance minister P Chidambaram said in a statement.
The setting up of the Commission, whose recommendations will benefit about 50 lakh central government employees, including those in defence and railways, and about 30 lakh pensioners, comes ahead of the assembly elections in 5 states in November and the general elections next year.
The government constitutes Pay Commission almost every ten years to revise the pay scales of its employees and often these are adopted by states after some modification.
As the Commission takes about two years to prepare its recommendations, the award of the seventh pay panel is likely to be implemented from January 1, 2016, Chidambaram said.
The Sixth Pay Commission was implemented from January 1, 2006, fifth from January 1, 1996 and fourth from January 1, 1986.
The names of the chairperson and members of the 7th Pay Commission and its terms of reference will be finalized shortly after consultation with major stakeholders, Chidambaram said.
Call it a poll compulsion or genuine desire to help government servants, the Centre on Wednesday decided to constitute the seventh pay commission for its five million employees and three million pensioners — three years before the commission’s recommendations will actually take effect. “Prime Minister (Manmohan Singh) has approved the constitution of the seventh Central Pay Commission,” Finance Minister P Chidambaram said in a statement here.
The pay commission awards, analysts say, might entail a Rs 1-lakh-crore annual burden. But the finance ministry doesn’t want to think about it yet: “don’t pre-judge the issue; let the terms of reference be decided first”.
According to officials, the move might soon be followed by a decision to increase the retirement age of government employees to 62 years from the current 60.
A look at earlier instances suggests the constitution of the pay commission at this time could be aimed at reverting to the usual practice, breached when the sixth pay panel was set up. The Cabinet had approved setting up of the sixth pay commission in July 2006, and its recommendations came into effect retrospectively from January 2006. But, that was because the Bharatiya Janata Party (BJP) -led National Democratic Alliance (NDA) government, in power then, had initially refused to set up the commission. The Congress-led central government on Wednesday tried to beat the BJP, the main Opposition at present, on this count.
“NDA had rejected the legitimate formation of the sixth pay commission in 2003. The Congress set up the sixth pay commission in 2005 and now the seventh one in 2013,” Party general secretary incharge for communication, Ajay Maken, tweeted.
The NDA finance minister had said there was no need to constitute the sixth pay commission, as 50 per cent dearness allowance had already been merged with the basic pay.
Asked whether the fiscal consolidation exercise of the government would not be affected, as it was estimated the exchequer would take a hit of Rs 1 lakh crore due to the recommendations of the seventh pay commission, a senior finance ministry official said: “How can you estimate the burden on the exchequer. The terms of reference have yet to be decided.”
The year 2016-17 would be the terminal year of a five-year fiscal consolidation road map announced by the finance minister. By that time, the government aims to bring down the Centre’s fiscal deficit to three per cent of gross domestic product. In 2012-13, the first year of the road map, the deficit had stood at 4.9 per cent of GDP. The plan is to lower it further to 4.8 per cent this financial year, and then by 0.6 percentage points each year.
To a query on whether the government should be allowed to set up the commission — the model code of conduct would come into effect as Assembly polls are due in five states — the official said the decision had been announced, so setting up of the commission would not violate the election commission’s guidelines.
He said the department of personnel would now start discussions with staff associations of government employees for announcing the constitution of the commission, as well as its terms of reference. It would be set up in about a month’s time, he added.
According to the 2011 census, there were 725 million voters in India. The finance ministry tried to brush aside the view that the government had set up the commission to woo the eight million government employees, pensioners and, indirectly, their dependents ahead of general elections.
It rather said the commission had been set up three years in advance to ensure that the recommendations did not have to be implemented retrospectively and there wasn’t any sudden financial burden in a single year.
According to the finance ministry’s statement, the average time taken by a pay commission to file its recommendations is about two years. “Accordingly, allowing about two years for the seventh pay commission’s report, the recommendations are likely to be implemented with effect from January 1, 2016.”
Traditionally, pay commissions have been set up after every 10 years to revise the pay scales of central government employees. States also accept these recommendations for their employees after certain modifications. However, since the sixth commission, headed by Justice B N Sri Krishna, was set up three years later because of NDA’s initial rejection, the gap between the fifth and the sixth commissions had become 13 years. The seventh, being advanced by three years, could also differ from the usual 10-year pattern.
The key area that the sixth pay commission focused on was removing the ambiguity in various pay scales and reducing the number of scales. For that, it introduced running pay bands for all government posts. It had recommended pay hikes of 20-40 per cent and also suggested a new system of four pay bands with 20 grade pays which was accepted with minor changes.
It had also recommended the minimum basic pay of Rs 6,660 a month. However, that was increased to Rs 7,000 by the Cabinet. The financial implications on account of these recommendations were to the tune of around Rs 22,000 crore for 2008-09.
Besides, 2008-09 was also the year when the government gave a Rs 1.85-lakh-crore stimulus to industry, which was battling the impact of a global economic slowdown. That and, to an extent, the pay commission’s recommendations had widened the Centre’s fiscal deficit to six per cent of GDP, against the originally planned 2.5 per cent.Rather, it said the commission was set up three years in advance to ensure that recommendations are not implemented from retrospective effect and there is not a sudden burden in a single year.
The finance ministry's statement said the average time taken by a Pay Commission to submit its recommendations has been about two years. "Accordingly, allowing about two years for the seventh pay commission's report, the recommendations are likely to be implemented with effect from January one, 2016."
Except for the sixth pay commission, headed by Justice B N Sri Krishna, and hence seventh as well, these panels are set up by government in a span of almost ten years to revise the pay scales of its employees. Even states accept the recommendations after certain modifications.
The key area of sixth pay commission was to remove ambiguity in respect of various pay scales and it focused on reducing the number of pay scales.
For that, it introduced running pay bands for all the posts in government. It had recommended pay raises of 20-40%. The commission had suggested a new system of four pay bands with 20 grade pays which was accepted with minor changes.
The Sixth CPC had recommended the minimum basic pay of Rs 6,660 a month. However, that was increased to Rs 7,000 by the Cabinet. The financial implications on account of these recommendations were around Rs 22,000 crore for 2008-09.
It should be remembered here that 2008-09 was also the time when the government gave stimulus to the industry, battling impact of the global financial crisis, to the tune of around Rs 1.85 lakh crore.
That and to a lesser extent pay commission’s recommendations had widened the Centre’s fiscal deficit to six% of GDP from the original planned 2.5%.
