8th Pay Commission: What could be the expected salary hike, fitment factor, and implementation date? Here's what a new report says
8th Pay Commission: Implementation expected to follow past timelines
Impact on government finances and GDP
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The 8th Central Pay Commission (CPC) is expected to be implemented by late 2026 or early 2027, according to a report by Kotak Institutional Equities. The government has announced the commission in January 2025 but is yet to finalise the Terms of Reference (ToR) or appoint its members.Kotak estimates that the minimum salary could rise from ₹18,000 to about ₹30,000, reflecting a fitment factor of around 1.8. This would lead to a real increase of nearly 13% in pay for central government employees affected by the revision. A total of around 3.3 million central employees, mostly from Grade C category, are likely to benefit the most. Grade C workers make up nearly 90% of the central government workforce.The timeline for the 8th CPC is expected to follow the pattern of previous commissions. The 6th and 7th CPCs took around 1.5 years to complete their reports. After that, the government took another 3 to 9 months to implement the recommendations post Cabinet approval. Kotak said, "The 8th CPC is unlikely to be implemented before late 2026 or early 2027."The estimated financial burden of the new pay commission could range between ₹2.4 lakh crore and ₹3.2 lakh crore, or about 0.6–0.8% of India's GDP. While this could add pressure to the fiscal budget, past pay revisions have shown temporary positive effects on the economy.Kotak noted that the pay hike may give a brief push to consumption and savings. 'We expect the 8th CPC to provide a temporary boost to consumption and savings,' the firm said. The impact is expected to be visible in sectors like automobiles and consumer staples. However, such gains have typically been short-lived.The firm also said that the revised pay structure may encourage more savings in both physical and financial assets such as equities and bank deposits. Kotak estimates that the pay revision could lead to incremental savings of ₹1–1.5 lakh crore.The last major revision, the 7th CPC, combined with the One Rank One Pension scheme, added about two percentage points to India's GDP growth in FY17. While similar growth is not guaranteed this time, Kotak believes the overall economic impact will still be significant, particularly in the short term.The government has not shared further updates on the 8th CPC beyond its announcement in January 2025. Until the ToR and commission members are finalised, the process remains in its early stages.As per a report last week, the Ministry of Finance has started holding early consultations with major stakeholders to set up the 8th Central Pay Commission. These talks include departments such as Defence, Home Affairs, and Personnel and Training, along with state governments. These discussions are intended to collect feedback ahead of the official notification of the commission.In a written reply in Parliament, 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.'Chaudhary also told the Lok Sabha that the appointment of the chairperson and other commission members will take place once the 8th CPC is formally constituted. No appointments have been made so far.The upcoming CPC may propose a fitment factor of 1.8 for salary revision. This would be lower than the 2.57 factor adopted in the 7th Pay Commission. While a fitment factor of 1.8 implies an 80% increase in the basic pay structure, the real impact on net salary would be reduced because the existing dearness allowance (DA)—currently around 55%—would reset to zero under the new system.If the fitment factor of 1.8 is accepted, the minimum basic salary may increase from ₹18,000 to around ₹32,000. But after adjusting for current allowances, the actual increment would amount to an estimated 13%. For example, the present ₹18,000 base salary includes a DA component of about ₹9,900. Similarly, a base salary of ₹50,000 may be revised to ₹90,000, but since DA of around ₹27,500 is already included, the effective rise would be smaller.The twice-yearly revision of dearness allowance is expected to continue under the 8th CPC. The DA, based on the Consumer Price Index for Industrial Workers, protects salaries and pensions from inflation. At present, revisions take place in January and July. By the time the new pay structure is introduced, the DA is projected to exceed 60% of the existing basic salary.The 7th Pay Commission, headed by Justice A K Mathur, recommended an overall rise of 23.55% in salaries, pensions, and allowances. The government approved most of the proposals with effect from January 1, 2016. The structure and impact of the 8th CPC are likely to be shaped by current economic conditions and inflation, but will follow broadly the same process, beginning with the collection of inputs from relevant departments and states.
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