8th Pay Commission must consider liabilities stemming from wages, pensions

The Union Cabinet on Tuesday approved the terms of reference for the 8th Central Pay Commission (CPC), initiating the process for revising the pay of central-government employees. The pay revision will benefit about five million employees, including defence personnel, and about 6.9 million pensioners. The CPC will be headed by Justice Ranjana Prakash Desai, a former judge of the Supreme Court. Pulak Ghosh of the Indian Institute of Management, Bangalore, will serve as part-time member, while Pankaj Jain, secretary in the Ministry of Petroleum and Natural Gas, will be member secretary to the CPC. The commission is expected to submit its report within 18 months. It may also choose to submit an interim report, and the recommendations are expected to be implemented from January 1, 2026.

 

The government has given a broad framework to the CPC for reviewing the pay structure. It will have to take into account the overall economic conditions of the country and the need to maintain fiscal prudence. It is important to ensure that adequate funds are available for developmental work. The implementation of the previous CPC’s recommendations had increased expenditure by ₹1 trillion. Importantly, the CPC will also need to consider the impact on state-government finances since they broadly adopt the CPC recommendations with some modification. It also needs to consider the pension cost. Further, the CPC is expected to take note of the prevailing working conditions in public-sector enterprises and the private sector. These broad conditions are extremely important, and wages in the government sector should not be disconnected from the broader economic situation and working conditions in other parts of the economy. As things stand, the high number of applications for lower-level government jobs underscores that such positions pay significantly higher than comparable jobs in the private sector. It is at the higher levels that the private sector begins to pay higher compensation than the government. In effect, this reflects the demand and supply of labour for different kinds of jobs and accounts for productivity.

 

It will always be hard for the government to follow market mechanisms, but systems must be adjusted to reflect the broader economic reality. Higher wages and other benefits prevent even the government, both at state and Union levels, from hiring. Governments now depend on contractual labour for certain segments. Another major issue that has remained unaddressed, despite repeated discussions during successive pay commissions, is the lack of a proper system to evaluate government employees. Thus, this CPC should not only review the compensation but also look at ways to improve productivity in the functioning of the government.

 

It is worth noting that all such issues are not limited to the functioning of the Union government. As has been outlined, the CPC is also expected to consider the condition of the state governments’ finances because they tend to adopt CPC recommendations. A recent report by the Comptroller and Auditor General of India on state finances showed that in 2022-23, 16 states spent over 20 per cent of their outlay on salaries. Similarly, several states spent a significant portion of their outlay on pension payments.  Thus, the 8th CPC needs to consider both the present and future liabilities on account of wages and pensions. India should not push itself into a position where a section of people get above-market wages while the government struggles to provide basic services to citizens.