Union Cabinet on Wednesday hiked salaries and pensions of nearly one crore Central government employees and pensioners by 23.5% as recommended by the 7th Central Pay Commission in November. The new wages will be applicable with retrospective effect from January 1, 2016 and the arrears – totaling over Rs 12,000 crore – will be paid this year itself.
The increase in both salary and pension is 2.57 times more over the 6th Pay Commission. The Cabinet also improvised on the recommended salaries to defence personnel to give a hike of 2.67 times as against 2.57 times to the civilians to ensure parity with the para-military forces. Those in the armed forces will get the highest hike in pay – from Rs 21,000 to Rs 31,500.
The commission's recommendation to cut as many as 196 kinds of allowances has been kept in abeyance. The Cabinet decided to constitute a committee, headed by the finance secretary, for further rationalisation of allowances and asked for its report within four months. Until then, the current allowances will continue.
The Cabinet also rejected the commission's recommendation for deduction of Rs 1,500 to Rs 5,000 per month for the group insurance and asked the finance secretary to explore a low-cost insurance for the employees.
Finance Minister Arun Jaitley described the hike as historic. Quoting an IIM Ahmedabad study, carried out at the behest of the pay commission to compare the salaries with the private sector, Jaitley said the government employees would now be getting more than double the salaries in the private sector. "The lowest helper in the government will get Rs 22,579 per month as against Rs 8,000-9,500 per month in private sector," he said.
The monthly basic salary of the lowest class IV employee will go up from Rs 7,020 to Rs 18,000 while the Class I officer's starting salary will be Rs 56,120. "The minimum pay of Rs 18,000 per month is reasonable to ensure decent standard of living," Jaitley said.
The annual recurring cost of the hike on the taxpayer will be Rs 72,800 crore and Rs 84,933 crore in the current year because of the arrears of Rs 12,134 crore to be paid for implementation from January 1. Though Jaitley insisted on paying the arrears in the current year, the Finance Ministry sources said the arrears will be paid with September salary to boost the employees' consumption during the festival season.
Jaitley said the Cabinet also accepted the pay commission's recommendation for 3% annual increment and enforcing it on two dates on January 1 and July 1 instead of just once. A group will be set up for hearing on the anomalies that may arise in implementation while another group will be streamlining the national pension scheme.
The interest-free advances for cars and two-wheelers have been abolished, but the advances for housing raised from Rs 7.5 lakh to Rs 25 lakh. Employees will also get interest-free advance for computers as also for medical treatment and other exigencies.
Jaitley pointed out that the previous governments took 19 months to decide on the 5th pay commission's recommendations and 32 months in case of the 6th pay commission, while the present government finalised the decisions on the 7th pay commission in seven months.
As against the increased annual burden of Rs 17,000 crore on the exchequer from the 5th pay commission, and Rs 40,000 crore from the 6th pay commission, implementation of the 7th pay commission will cost Rs 72,800 crore, and this may change because the decision on allowances has been deferred for the secretary-level committee to reconsider the pay commission's recommendations, he said.
He said the idea behind hike in emoluments is to increase consumer spending to trigger economic growth. He, however, didn't rule out its cascading effect on inflation. Experts also believe that additional cash was a double-edged whammy, as it could also fuel inflation, affecting poor. As government employees are known to invest their additional income in real estate, it is believed that the sector currently in doldrums will get a boost.
The Confederation of Central Government Employees, meanwhile, dubbed the hike as "unacceptable" in view of the prevailing economic conditions.
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