8th Pay Commission: 30-34% salary hike likely for government employees, says report, check the likely fitment factor, other key details

Time of India

10-07-2025

Potential hike of 30-34% in wages & pensions could be on the table
Compensation structure of government employees
Why the 8th Pay Commission may be delayed beyond January 2026
Many government employees are eagerly awaiting the implementation of the 8th Pay Commission . The 8th Pay Commission is likely to significantly boost government salaries and pensions by 30-34%, impacting around 11 million beneficiaries, as per a recent report by a brokerage firm Ambit Capital.The recommendations of the 8th Pay Commission are scheduled to come into effect from January 2026 but it will only be implemented once the report prepared, sent to government and its recommendations are approved.A research report by brokerage firm Ambit Capital suggests that a potential hike of 30-34% in salaries and pensions could happen once the 8th Pay Commission is implemented."The 7th Pay Commission (January 2016 - December 2025) had implemented a modest salary hike of ~14% (lowest since 1970). We expect the 8th Pay Commission to announce a hike of 30-34% for salaries & pensions to cover ~11mn beneficiaries to boost consumption," the report states.A Pay Commission is established every ten years specifically to boost government salaries, aiming to keep them competitive with the private sector to ensure parity and retain skilled talent.While the 8th Central Pay Commission (CPC) was announced earlier this year. However, details regarding its terms of reference, members, and chairman have not yet been declared. The 8th Pay Commission will replace the 7th CPC, which came into effect in 2016. The 8th Pay Commission will affect the basic pay, allowances, pensions, and retirement benefits of government employees.The Pay Commission's recommendations will directly benefit approximately 4.4 million central government employees across various ministries and departments, and 6.8 million pensioners (~11.2 million direct beneficiaries). The Commission will review and propose adjustments to their salary structure, allowances, and other benefits.The 'fitment factor' is an important multiplier in determining the hike in government salaries. The revised basic pay for any Pay Commission is calculated by multiplying the current basic pay by the fitment factor, which determines the pay increase for beneficiaries.The fitment factor varies across different pay commissions. For instance, the 7th Pay Commission recommended a common fitment factor of 2.57, which increased the minimum basic pay for central government employees to Rs 18,000 per month from Rs 7,000. There have been speculations about considering a higher fitment factor (2.57-2.86) this time.The research report states, "It is important to note that, even with a 2.57 fitment factor in the 7th Pay Commission, overall government salaries did not grow by 2.57x, only the base pay did. As soon as a Pay Commission ends, the dearness allowance (DA) becomes zero as the index is re-based. Previously, under the 6th Pay Commission, an employee earning a basic pay of Rs 7,000 actually took home Rs 15,750 (which included a 125% Dearness Allowance) plus an additional Rs 4,550 in allowances for components like travel and accommodation."The 7th Pay Commission introduced a fitment factor of 2.57, raising the minimum basic pay to Rs 18,000. However, DA was reset to zero at the start of the new Commission. So, the actual increase in the salary component was 14.3% (Rs 18,000 over the previous Rs 15,750). Factoring in the allowances, the overall compensation saw an increase of 23% in the first year.The 6th Pay Commission (2006) recommended a significant increase in pay and allowances (~54%).Meanwhile, the 7th Pay Commission (2015) recommended an increase of 14.3% in basic pay (the lowest growth amongst the last 4 Pay Commissions), and introduced a new pay matrix system. Ahead of the 8th Pay Commission, we attempt to make assumptions about the range of fitment factors, drawing on the historical increases observed in past Pay Commissions: 14.3% (among the lowest effective increase in overall salary, seen with the 7th Pay Commission) and 54% (the highest overall increase, seen with the 6th Pay recommendations).Actual Increase in Salary= (Fitment factor)/ (1+Last Dearness Allowance).The report suggests that the fitment factor for the 8th Pay Commission could be anywhere between 1.83 and 2.46. Depending on the salary growth seen over different Pay Commissions, the range of fitment factors that the government could be looking at lies between 1.83 and 2.46.To understand how new salaries are calculated for government employees, it is important to understand the existing salary structure. Typically, the basic compensation package for government employees in India comprises basic pay, dearness allowance (DA), house rent allowance (HRA), transport allowance (TA), and other allowances, besides pension. Over time, the share of basic pay in salaries has gone down from 65% to roughly 50%, while other allowances have risen.These are the various components of a government employees' salary:It is the fixed core component of the salary, determined by the employee's pay level and it reflects their role and seniority.This is a cost-of-living adjustment. It is a percentage of the basic salary designed to neutralise the impact of inflation and maintain purchasing power. DA rates are revised periodically, typically twice a year, based on the Consumer Price Index (CPI). For instance, if basic pay is Rs 18,000 and the current DA rate is 50%, then DA equals 50% of Rs 18,000 = Rs 9,000. This Rs 9,000 is added to the basic pay, making the total pay higher to offset rising living costs.A portion of basic pay (27%, 18%, or 9%) to cover rental housing expenses, varying by location.A fixed monthly amount to cover commuting costs, based on pay level and city type.8th Pay Commission's impact on pensionsThere are 6.8 million Central government pensioners, higher than the number of active government employees. The impact of the 8th Pay recommendations on pensions will likely be similar to government salaries. Pensions comprise salaries and dearness allowance, but do not have HRA and travel allowance components. This means the basic pay component will increase by the fitment factor, while the dearness allowance will be reset to zero.There has been some contention around the National Pension Scheme (which replaced the OPS) regarding the guaranteed post-retirement pension corpus. As a result, the government modified the existing NPS into the Unified Pension Scheme (UPS) effective from April 2025. This new option under NPS is a hybrid of defined contribution and defined benefit scheme as 50% of the last drawn salary (as base pay) has now been guaranteed from FY26.There are chances of a delay in the Commission's formation, which could eventually lead to higher arrears if implementation is pushed back. The 7th Pay Commission, which was implemented in January 2016, had been announced nearly two years earlier, in February 2014. This gap allowed sufficient time for report preparation, cabinet approval and rollout. As of mid 2025, the 8th Pay Commission has not yet been formed, and its crucial Terms of Reference (ToR), which define its scope and objectives still remain pending.According to senior officials, internal discussions are ongoing, but the slow pace of bureaucratic processes means that the rollout may extend well beyond the anticipated January 1, 2026 date. Even if the Commission is announced by the end of this year, historical timelines suggest that the process from announcement to implementation usually takes 18-24 months. At this rate, the pay hike could realistically arrive only by late 2026 or even early 2027.Adding to this possible delay are fiscal challenges. The government is balancing welfare spending, election commitments and fiscal deficit targets. A substantial hike could place a significant burden on the exchequer, prompting policymakers to move cautiously.