New Delhi, July 23: After months of delay since its initial announcement in January 2025, the Central Government has finally taken concrete steps to constitute the 8th Pay Commission, initiating consultations with key stakeholders including the Ministry of Defence, Ministry of Home Affairs, Department of Personnel and Training, and various state governments. The move was confirmed by Minister of State for Finance Pankaj Chaudhary in a written reply to the Lok Sabha.
The Pay Commission, which is revised every ten years, is tasked with reviewing the salaries, allowances, and pensions of over 1 crore Central Government employees and pensioners, ensuring compensation structures align with inflation and rising living costs. The 8th Pay Commission is expected to be implemented from January 2026, a decade after the 7th Commission came into effect.
While the government’s move to speed up the constitution process has been welcomed by employee unions, a recent financial report by Kotak Institutional Equities has tempered expectations. The report predicts a lower salary hike of around 13%, compared to the 14.3% hike granted during the 7th Pay Commission. This is largely due to a projected reduction in the fitment factor—a multiplier used to calculate revised salaries—from 2.57 earlier to an estimated 1.8.
The fitment factor plays a crucial role in determining revised pay. For example, under a fitment factor of 1.8, an employee currently drawing a basic salary of ₹18,000 would see their revised pay rise to ₹32,400. However, this increase excludes allowances such as Dearness Allowance (DA) and House Rent Allowance (HRA), which are calculated separately.
Significantly, once the new pay matrix is implemented, the existing DA—currently at 55%—will be reset to zero. This reset will impact the overall take-home salary until the new DA cycle begins again. The real impact on earnings will thus depend on how soon and how substantially the new DA structure is phased in.
Although employees were hoping for a more generous hike amid rising living costs, the indications of a more conservative revision have led to mixed reactions. Employee associations are expected to lobby for better terms as the final structure is drafted.
The government is likely to formally notify the 8th Pay Commission soon, following the conclusion of consultations. (Agencies)
