Pay, performance, prudence: 8th Pay Commission must heed ground realities

As the government sets the wheels in motion for the constitution of the Eighth Central Pay Commission (CPC), the challenge of reconciling employee welfare with fiscal sustainability will be at the forefront. The commission’s recommendations will affect nearly 4.5 million central-government employees and 6.8 million pensioners, including those of the defence personnel. Beyond just the salary arithmetic, it must realistically reflect India’s evolving economic landscape, shifting demographics, and the government’s fiscal capacity.

 

One of the prominent demands from staff representatives, as reported by this newspaper recently, is to increase the “standard consumption norm” from 3 to 3.6 units — a key input for calculating minimum salaries. However, this proposal assumes larger household sizes, which no longer align with India’s demographic reality. It is worth noting that compensation at the lower and mid levels is significantly higher than in the private sector. This is reflected in the large number of overqualified applicants competing for a limited number of jobs. As reported recently, over 10 million people have applied for group D jobs in the Indian Railways. Such jobs, originally intended for low-skilled workers, are now highly contested, largely due to relatively high wages and job security, and this distorts labour-market signals and leads to underutilisation of the skilled youth.

 

The government itself appears conscious of the growing wage burden. Nearly one in four sanctioned posts remains vacant, not primarily due to inefficiency but because hiring at current pay scales has become difficult. As a result, there is a growing shift towards contractual appointments, which, while cost-effective, erode long-term job security and weaken institutional capacity. This scenario calls for a rethinking of how compensation is structured. The terms of reference (ToR) for the CPC must reflect India’s fiscal position and constraints. The previous CPC added nearly ₹1 trillion to the Centre’s expenditure in 2016-17. It must be noted that government wages are already indexed to inflation through biannual dearness-allowance revisions. Thus, any significant increase must be linked to performance. Unlike the private sector, where pay progression is tied to productivity, compensation in government continues to hinge on seniority. The CPC must be asked to recommend steps for institutionalising performance-based elements, ensuring that excellence, not just tenure, is recognised and rewarded. Furthermore, under the new tax regime, salaried individuals with an annual income up to ₹12.75 lakh (the standard deduction being ₹75,000) don’t have to pay income tax, which improves the take-home pay for a vast majority of government employees.

 

In sum, the commission should be expected to strike a realistic balance: Generous enough to attract and retain talent at the right positions but disciplined enough to protect fiscal health. Central pay structures serve as benchmarks for states and other related organisations, amplifying the ripple effects of any change. The goal should not be merely to raise salaries but to lay the groundwork for a more efficient, accountable, and performance-driven state that India can both afford and rely on.