Good news for PSU employees: 7th Pay Commission recommends 23.55% hike

Chairman of the 7th Pay Commission submitted its report to FM on Nov 19

IN A big post Diwali bonanza, the seventh central pay commission on November 19 recommended a 23.55 per cent hike in the cumulative earnings of serving and retired central government employees, saddling the Union government with a bill of Rs 1.02 lakh crore in the next financial year. The figure of 23.55 per cent covers the increases in pay, allowances and pension.
However, the recommended raise in basic...
pay is only 14.27 per cent – the lowest in 70 years. The basic pay determines various allowances. The previous commission had recommended a 20 per cent hike, which the government doubled while implementing it in 2008.
The gratuity ceiling will be enhanced to Rs 20 lakh from Rs 10 lakh. It will be raised by 25 per cent whenever dearness allowance goes up by 50 per cent.
The recommendations of the pay commission will come into effect from January 1, 2016.
The pay commission, headed by Justice A.K. Mathur, submitted its 900-page report to Union finance minister Arun Jaitley at his residence. A secretariat headed by the expenditure secretary will study the report before the government takes the final decision. Normally, the government doesn’t reject the commission’s recommendations.
The Union budget will have to set aside Rs 73,650 crore and the railway budget Rs 28,450 crore to meet the pay increase if the government accepts the recommendations without any change.
Highlights of Recommendations
Recommended Date of implementation: 01.01.2016
Minimum Pay: Based on the Aykroyd formula, the minimum pay in government is recommended to be set at Rs 18,000 per month.
Maximum Pay: Rs. 2,25,000 per month for Apex Scale and Rs.2,50,000 per month for Cabinet Secretary and others presently at the same pay level.
Financial Implications:
The total financial impact in the FY 2016-17 is likely to be Rs.1,02,100 crore, over the expenditure as per the ‘Business As Usual’ scenario.  Of this, the increase in pay would be Rs.39,100 crore, increase in allowances would be Rs. 29,300 crore and increase in pension would be Rs.33,700 crore.
Out of the total financial impact of Rs.1,02,100 crore, Rs.73,650 crore will be borne by the General Budget and Rs.28,450 crore by the Railway Budget.
In percentage terms the overall increase in pay & allowances and pensions over the ‘Business As Usual’ scenario will be 23.55 percent. Within this, the increase in pay will be 16 percent, increase in allowances will be 63 percent, and increase in pension would be 24 percent.
The total impact of the Commission’s recommendations are expected to entail an increase of 0.65 percentage points in the ratio of expenditure on (Pay+Allowances+ Pension) to GDP compared to 0.77 percent in case of VI CPC.
New Pay Structure: Considering the issues raised regarding the Grade Pay structure and with a view to bring in greater transparency, the present system of pay bands and grade pay has been dispensed with and a new pay matrix has been designed. Grade Pay has been subsumed in the pay matrix. The status of the employee, hitherto determined by grade pay, will now be determined by the level in the pay matrix.
Fitment: A fitment factor of 2.57 is being proposed to be applied uniformly for all employees.
Annual Increment: The rate of annual increment is being retained at 3 percent.
Modified Assured Career Progression (MACP):
Performance benchmarks for MACP have been made more stringent from “Good” to “Very Good”.
The Commission has also proposed that annual increments not be granted in the case of those employees who are not able to meet the benchmark either for MACP or for a regular promotion in the first 20 years of their service.
No other changes in MACP recommended.
House Rent Allowance: Since the Basic Pay has been revised upwards, the Commission recommends that HRA be paid at the rate of 24 percent, 16 percent and 8 percent of the new Basic Pay for Class X, Y and Z cities respectively. The Commission also recommends that the rate of HRA will be revised to 27 percent, 18 percent and 9 percent respectively when DA crosses 50 percent, and further revised to 30 percent, 20 percent and 10 percent when DA crosses 100 percent.
In the case of PBORs of Defence, CAPFs and Indian Coast Guard compensation for housing is presently limited to the authorised married establishment hence many users are being deprived. The HRA coverage has now been expanded to cover all.
Any allowance not mentioned in the report shall cease to exist.
Emphasis has been placed on simplifying the process of claiming allowances.
Advances:
All non-interest bearing Advances have been abolished.
Regarding interest-bearing Advances, only Personal Computer Advance and House Building Advance (HBA) have been retained. HBA ceiling has been increased to Rs.25 lakhs from the present Rs.7.5 lakhs.
Medical Facilities:
Introduction of a Health Insurance Scheme for Central Government employees and pensioners has been recommended.
Pension: The Commission recommends a revised pension formulation for civil employees including CAPF personnel as well as for Defence personnel, who have retired before 01.01.2016. This formulation will bring about parity between past pensioners and current retirees for the same length of service in the pay scale at the time of retirement.
Gratuity: Enhancement in the ceiling of gratuity from the existing Rs.10 lakh to Rs.20 lakh. The ceiling on gratuity may be raised by 25 percent whenever DA rises by 50 percent.