8th Pay Commission May Bring 13% Salary Hike For Central Government Employees: Kotak

News18

25-07-2025

The 8th Pay Commission may not be implemented before late 2026 or early 2027, says Kotak Institutional Equities.
8th Pay Commission: Central government employees are likely to receive a nearly 13% real salary hike after the 8th Pay Commission, according to a report by Kotak Institutional Equities, adding that the panel may not be implemented before late 2026 or early 2027. The brokerage firm also said a fitment factor of 1.8 might be adopted, and the minimum pay level is likely to increase from Rs 18,000 to Rs 30,000 per month.
The fitment factor is a multiplier used to revise the basic salary of central government employees based on recommendations by a Pay Commission; it adjusts the existing pay structure to arrive at the new pay levels.
However, the pay hike may not come anytime soon. Kotak said the government has yet to define the Terms of Reference (ToR) or appoint members to the new commission. It added that the 8th CPC is unlikely to be implemented before late 2026 or early 2027. The 6th and 7th CPCs took roughly 1.5 years to prepare their reports after being set up, followed by a 3-9 month implementation window after the Cabinet approval.
The 8th Pay Commission was announced in January 2025. However, its ToR and members are yet to be announced.
8th Pay Commission Fiscal Cost
Roughly 3.3 million central government employees would be directly impacted, with Grade C staff, who make up nearly 90% of the workforce, benefiting the most.
8th Pay Commission: Impact On Discretionary Spending
Kotak said previous CPCs, especially the 7th, led to temporary surges in discretionary spending and positively impacted sectors such as automobiles and consumer staples. However, these effects generally fade within a year.
RBI data cited in the report shows that the 7th CPC and the implementation of the One Rank One Pension (OROP) scheme added around two percentage points to GDP growth in FY17.
On the savings front, Kotak expects a portion of the extra income from the 8th CPC to flow into both physical and financial assets — including equities and bank deposits. The brokerage estimates that incremental savings of Rs 1-1.5 lakh crore could result from the pay hike cycle.
While the 8th Pay Commission is expected to deliver a notable one-time boost to consumption and savings, Kotak reiterates that its rollout remains at least 18 months away.
8th Pay Commission: 'Inputs Sought From Stakeholders'
Meanwhile, the finance ministry on July 21 told Parliament that the central government has geared up to expedite the process of constituting the 8th CPC by taking consultations with key stakeholders including states, the Ministry of Defence, the Ministry of Home Affairs, and the Department of Personnel and Training.
In a written reply to the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said, 'Inputs have been sought from major stakeholders, including Ministry of Defence, Ministry of Home Affairs, Department of Personnel & Training and from States."
Asked on the implementation timeline, Chaudhary said: 'The implementation would be taken up once the recommendations are made by the 8th CPC and are accepted by the Government."
Every 10 year, the government revises the basic salary of its employees and pensions of pensioners in align with the rising cost of living and other expenses.
In January, the Cabinet approved setting up the 8th Pay Commission to revise salaries of nearly 50 lakh central government employees and allowances of about 65 lakh pensioners.
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