Bonanza for Central government employees, pensioners

The Union Cabinet on Wednesday accepted all the recommendations of the Seventh Pay Commission, effecting an overall increase of about 23.55 per cent in the salaries, allowances and pensions of approximately one crore Central government employees and pensioners.

The move is expected to give a big boost to the economy as consumption demand in urban areas is likely to rise owing to the rise in income level. The decision comes months before the high-stakes Uttar Pradesh Assembly polls scheduled for early 2017.

Central government employees and pensioners will get a 2.5-fold hike in basic pay and pensions that will cost the exchequer Rs 1.02 lakh crore annually. The government says the hikes will have a multiplier effect on the economy. The recommendations come into effect from January 1, 2016.

There are 47 lakh Central government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the defence forces.

The arrears in pay and pensionary benefits will be given in a phased manner during the current financial year itself, unlike in the past when parts of arrears were paid in the next financial year, official sources said. The hiked salaries will be payable from August 1, 2016.

“After implementation of the Seventh Pay Commission report, government salaries are distinctively higher than market salaries and private sector salaries,” Union finance minister Arun Jaitley told the media.

As per the revised scales, the entry-level basic pay will go up from the existing Rs 7,000 per month to Rs 18,000, while at the highest level — at the rank of Cabinet Secretary — it would go up from Rs 90,000 to Rs 2.5 lakh. For Class 1 officers, the starting salary will be Rs 56,100.

The gratuity ceiling has been enhanced from Rs 10 lakh to Rs 20 lakh. The ceiling on it will increase by 25 per cent whenever DA rises by 50 per cent.

While the Cabinet meeting, chaired by Prime Minister Narendra Modi, accepted the recommendations in respect of hikes in basic pay and pension, a decision on the suggestions relating to allowances has been referred to a committee headed by the finance secretary.

Mr Jaitley said government salaries have to be respectable in comparison to the private sector and for this the commission had engaged IIM-Ahmedabad for making a comparison. Allaying fears about the government’s fiscal maths going wrong, Mr Jaitley said the budget has provided for the anticipated expenditure and it did not come as a surprise.

Concerns have also been expressed over the extra money in the economy pushing up inflation. The minister admitted that there will be some inflationary pressure.

Maintaining that the government cannot grudge a hike in salary for government staff after 10 years, he said, “When people get more money, it comes back in the system in the form of taxation. Savings will increase... Spending will go up.” The pay commisssion had recommended abolition of 53 of the 196 allowances that government employees currently get and moderation in several others. The scrapping of the allowances was opposed by the unions and so it has been referred to a committee of secretaries.

The once-in-a-decade pay hike has seen the burden on the exchequer rise from Rs 17,000 crore in the Fifth Pay Commission to Rs 40,000 crore in the Sixth and Rs 1,02,100 crore in the Seventh Pay Commission, Mr Jaitley said.

While the Cabinet approved the commission’s recommendation to enhance the ceiling of house building loans from Rs 7.5 lakh to Rs 25 lakh, the suggestion to deduct Rs 1,500-5,000 per month towards group insurance was not accepted.

The rate of annual increment has been retained at three per cent. Also, interest-free advances for medical treatment, travel allowance and LTC have been retained. “All other -free advances have been abolished,” an official statement said.

For the armed forces, the gratuity ceiling has been doubled to Rs 20 lakh and it will increase by 25 per cent whenever dearness allowance rises by 50 per cent.

Mr Jaitley said the Cabinet has brought about parity between defence personnel and the Combined Armed Police Forces by providing an additional indexation.

“Government salaries have to come to at a respectable level so that the government is able to attract the best talent. Not necessarily in civil services alone but also other services, and, therefore, the irrevocable consequence of this would be a pressure on the Budget along with OROP recommendations,” he said. The finance minister added that there would be more money in the market to spend, that this would generate more demand that, in turn, would push economic growth.

Also, additional savings will help the economy, but, on the flip side, more money supply will lead to “inflationary pressure”, he said. The minister also announced the constitution of a separate committee to look into anomalies arising out of the implementation of the Seventh Pay Commission’s recommendations. Another panel would be set up to suggest streamlining the implementation of the National Pension System.