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7th Pay Commission recommends 23.55% salary hike

The Pay Commission, headed by Justice Mathur, today submitted its 7th Pay Commission report to Finance Minister Arun Jaitley recommending a 23.55 percent hike in allowance, pays and pensions.

The breakup of the hike is as such: 16 percent increase in pay; 24 percent increase in pension; 63 percent increase in allowances. The recommendations of the report will be implemented from January 1, 2016.

The report recommends a minimum basic pay for central government staff of Rs 18,000 with a maximum pay of Rs 2.25 lakh per month.

Speaking to CNBC-TV18, Justice Mathur said, “My only consideration was to make the service condition of all the service employees ameliorating so that they may perform their duty without worrying about their butter and bread. “

Based on the data taken from Shimla Bureau of 1-1-2015, the Commission determined the basic salary of Rs 18,000 and has done away with grade pay and the pay bands, adds Justice Mathur.

Addressing the media post Justice Mathur’s comments, FM Jaitley said the 7th Pay Commission recommendations would have a 0.65 percent impact on the gross domestic product (GDP).

The FM said the Commission report will impact 47 lakh serving government employees and will have a Rs 1.02 lakh crore monetary impact. Of this amount, Rs 74,000 crore will be the additional cost on Union Budget and Rs 28,000 crore on Railway Budget.

Jaitley said, “The government will now create an Implementation Secretariat that will start work on this soon. A separate Empowered Committee too will be created to help implement this Pay Commission. We hope to take a final decision on this soon.”

Highlights of the report:

– The Commission has recommended implemented One Rank One Pension for central government staffers as well as armed forces.

On the demand of OROP, Justice Thakur says, “The OROP is a nomenclature which has been used by the defence forces but my dispensation is that each officer who retires irrespective of the year in which they retired, the pension will be same for them. If a person retired in 2004 and a person who retired 10 years back, the pension will be same for them. Let the defence forces make a choice whether this dispensation suits them or the formula which has been given by them suits them, it is their choice.”

Annual Increment: The rate of annual increment is being retained at 3 percent.

Minimum Pay: Based on the Aykroyd formula, the minimum pay in government is recommended to be set at Rs 18,000 per month.

Maximum Pay: The Commission has recommended Rs 2,25,000 per month for Apex Scale and Rs 2,50,000 per month for Cabinet Secretary and others presently at the same pay level.

– Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh with ceiling on gratuity to be raised by 25 percent whenever DA rises by 50 percent.

– The Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances or in newly proposed allowances.

Military Service Pay (MSP): The MSP, which is a compensation for the various aspects of military service, will be admissible to the Defence forces personnel only. As before, Military Service Pay will be payable to all ranks up to and inclusive of Brigadiers and their equivalents. The current MSP per month and the revised rates recommended are as follows:

Sajid Chinoy of JP Morgan says one shouldn’t jump the gun as the government has the freedom of accepting the report as it is or possibly staggering it over a couple of years.

“To the extent that the central government’s direct wage bill goes up by close to 0.5 percent of the GDP  which are the first estimates. That does significantly increase the fiscal challenge for next year. Remember the context over here, the deficit has to go down by 0.4 percent of GDP next year. So, if you have to achieve that adjustment in the wake of a 0.5 percent increase in the wage bill basically what you need to do is find close to 1 percent of GDP in fiscal space,” adds Chinoy.

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