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Budget Terms Decoded: What is the Seventh Pay Commission?

The Pay Commission was set up to extend recommendations regarding the work and salary structure of all civil and military divisions that are employed under the government. Up till now, the government has had seven pay commissions and the 7th pay commission was set up in September 2013. The commission’s recommendations impacting 33 lakh central government employees, 14 lakh armed forces personnel, and 52 lakh pensioners, was accepted by the government on June 2016.

The 7th Pay Commission recommended a 23.55% overall hike in pay, pensions and allowances. It recommended a hike in minimum pay from Rs 7,000 to Rs 18,000 per month and maximum pay at Rs 2,25,000 per month and Rs 2,50,000 per month for the cabinet secretary and others at the same level. The gratuity ceiling was enhanced from Rs 10 to Rs 20 lakh.

The system of pay bands and grade pay was dropped and a new pay matrix was recommended by the commission while a fitment factor of 2.57 was implemented. This would benefit employees in future on account of higher basic pay as the annual increments that they earn in future would be 2.57 times that at present. Separate pay matrixes were sketched for civilians, defence personnel and for military nursing services.

The commission recommended a revised pension formula for civil and defence personnel who had retired before January 1, 2016. The aim of the formula was to bring a parity between the past pensioners and current retirees. The past pensioners would be fixed in the new pay matrix based on their previous pay band and grade pay, at which they retired. The amount would then be raised by adding the number of increments earned while in service at the rate of 3%. 50% of the total amount arrived would be the new pension. An alternative calculation would be carried out, which would be the multiple of 2.57 times of the current basic pension. The pensioner would get whichever alternative would be higher.

The Commission also recommended introduction of the Performance Related Pay (PRP) for all categories of Central Government employees, based on quality Results Framework Documents, reformed Annual Performance Appraisal Reports and some other broad guidelines. The Commission has also recommended that the PRP should subsume the existing Bonus schemes.

The total financial expenditure due to the revised salaries and pension amounts was Rs 1,02,100 crore out of which Rs 73,650 crore was borne by the General Budget and Rs 28,450 crore by the Railway Budget last fiscal.