Pay commissions have had their impact on finances with double-digit growth in wage bill

Pay commission add fiscal pressure

The announcement by the government to set up the eighth pay commission may not have an impact on the finances in the upcoming budget for 2025-26, but it would undoubtedly add to the government’s revenue spending if implemented in 2026-27.

A Moneycontrol analysis shows that the seventh pay commission implemented in 2016-17 added 21.7 percent to the central government’s salary bill, excluding defence salaries. While the sixth commission, implemented over two years, 2008-09 and 2009-10, raised the salary bill by 46 percent and 33 percent, respectively.

Further analysis shows that the increase in the pension bill of the central government was even higher, as pension liability rose 35.8 percent in 2016-17, while it rose 70 percent in 2009-10.

Seventh pay commission’s total financial impact was nearly five times at Rs 1 lakh crore compared with Rs 22,000 crore for the sixth commission, as per a study done for fifteenth finance commission.

The eighth pay commission’s impact may be even higher as the government’s workforce is on the rise again.

An earlier analysis by Moneycontrol found that the Centre reversed a five-year downsizing trend in FY24, expanding its workforce to 3.56 million, compared with 3.17 million in the previous year.

Pay gap has increased

What remains to be seen is if the new commission will add to the growing dissonance between top and bottom salaries.

The difference between minimum and maximum pay, which had declined to 10.2 times by the fifth pay commission, had increased to 11.4 times by sixth pay commission and 12.5 times by the seventh pay commission.

The maximum pay at Rs 2,25,000 was 12.5 times the minimum pay of Rs 18,000.

States to be impacted more

The impact on states is expected to be greater as salaries and wages account for a larger proportion of revenue spending and pay commissions tend to increase this further.

For instance, in years following sixth pay commission, the average wage bill rose from around a quarter of revenue spend to 30 percent.

In the years leading up to seventh pay commission, wage bill was 22.9 percent of revenue expenditure, but rose to 28 percent following implementation of seventh pay commission by some states.

The finance commission study found that states take 2-3 years to implement recommendations of eighth pay commission.