One issue that is likely to come up again is the annual increment rate for central government employees.
8th Pay Commission news: The 8th Pay Commission is set to travel to Chennai on September 7 and 8, following its two-day stakeholders’ consultation meeting in Jaipur. During the Chennai visit, representatives of employee and pensioner organisations, along with other stakeholders, are expected to meet officials of the 8th CPC and put forward their demands on various issues. One issue that is likely to come up again is the annual increment rate for central government employees. Several major employee organisations had raised the issue prominently during the previous consultation, seeking an increase from the existing 3% rate. Employee bodies have argued that the current 3% annual increment is not sufficient to keep pace with rising expenses. Their recommendations have ranged from 5% to 7%. If such proposals are accepted, a higher increment rate of 5% or 7% would have a direct impact on the salary progression of central government employees.
8th Pay Commission: Recommendations for higher increment rate
The National Council of the Joint Consultative Machinery (NC-JCM), the main body representing central government employees, has proposed raising the annual increment to 6% in its memorandum submitted to the 8th Pay Commission. The All India Defence Employees’ Federation (AIDEF) and the Federation of National Postal Organisations (FNPO) have also sought an annual increment rate of 6%. The All India New Pension Scheme Employees’ Federation (AINPSEF) has made the highest demand among these organisations, recommending a 7% annual increment. The Indian Railways’ Supervisors’ Association (IRTSA) has proposed a 5% annual increment rate, according to ET.
How 3% annual increment rate impacts salaries of central government employees
To understand the effect of the existing 3% annual increment, consider a Level 1 central government employee. Under the 7th Pay Commission, the starting basic pay for this level is Rs 18,000. With a 3% annual increment, the basic pay would rise to Rs 23,500 by the end of the 10th year of the pay commission. A similar calculation for a Level 5 employee shows that a starting basic pay of Rs 29,200 under the 7th Pay Commission would increase to around Rs 38,100 by the 10th year. Basic pay is not the only component of a central government employee’s salary. Most employees also receive dearness allowance (DA), house rent allowance (HRA) and transport allowance (TPTA). Despite these additional allowances, employee associations argue that those at the lower levels can still find it difficult to manage their expenses, particularly when posted in Tier I cities. The AINSPEF has argued that a 7% annual increment could nearly double an employee’s basic salary over the course of a pay commission.
How employees’ basic pay may be impacted at 5%-7% annual increment rates
To see how a higher annual increment could affect salary progression, ET considers a Level 8 employee whose current basic pay is Rs 47,600. For this comparison, assume that the 8th Pay Commission approves a 2.15 fitment factor. The employee’s basic pay can then be compared over a 10-year period under four different annual increment scenarios: 3%, 5%, 7%.
Salary calculation assumptions
To compare how different annual increment rates could affect salary progression, the calculation uses the following assumptions:
The current basic pay of the Level 8 employee is Rs 47,600.
The estimated revised basic pay under the 8th CPC is calculated by multiplying the existing basic pay by a 2.15 fitment factor.
At a 3% increment rate, the annual increase is calculated on the revised basic pay.
The total salary over 10 years is calculated using the 3% annual increment.
The same revised basic pay is used to calculate the annual increment at rates ranging from 5% to 7%.
The 10-year salary under the higher increment rates is then compared with the total salary under the 3% increment.
The additional salary over 10 years is the difference between the total pay under the 5%, 6% or 7% increment and the total pay under the 3% increment.
The employee’s current basic pay is Rs 47,600. Applying the assumed 2.15 fitment factor gives an estimated revised basic pay of Rs 1,02,340.
Salary benefit in 10 years at 3% vs 5% annual increment rate
The salary progression under the two scenarios works out as follows:
Year 1: At 3%, monthly basic is Rs 1,02,340 and annual salary is Rs 12,28,080. At 5%, monthly basic is Rs 1,02,340 and annual salary is Rs 12,28,080.
Year 10: At 3%, Rs 1,33,530 monthly and Rs 16,02,366 annually. At 5%, Rs 1,58,763 monthly and Rs 19,05,155 annually.
Over the 10-year period, the total pay under the 3% increment is Rs 1,40,78,561, compared with Rs 1,54,46,658 under the 5% increment. That means the higher 5% increment would result in an additional Rs 13,68,097 over 10 years.
Salary benefit in 10 years at 3% vs 7% annual increment rate
The gap becomes even wider when the annual increment is assumed to be 7%.
Year 1: At 3%, monthly basic is Rs 1,02,340 and annual salary is Rs 12,28,080. At
Year 10: At 3%, Rs 1,33,530 monthly and Rs 16,02,366 annually. At 7%, Rs 1,88,148 monthly and Rs 22,57,775 annually.
Over 10 years, total pay under the 3% increment works out to Rs 1,40,78,561. At a 7% annual increment, the corresponding figure rises to Rs 1,69,67,703. The additional pay under the 7% scenario would therefore be Rs 28,89,143 over 10 years. These calculations illustrate how a small increase in the annual increment rate can widen the difference in basic pay for central government employees over time. However, these figures are only estimates. The actual increment rate and salary revision will be known only after the government notifies the 8th Pay Commission report.
