8th Pay Commission May Result In Sharp Rise In Govt's Salary, Pension Expenses: ICRA Report

The 8th Central Pay Commission was expected to take effect this month, but reports suggest that the commission’s recommendations are still around 15-18 months away from being submitted to the government. However, if the 8th Pay Commission is to be implemented, a significant rise in the government’s salary and pension expenses, which in turn will put pressure on the Budget management, said a report by ICRA.

A detailed report by ICRA said that the Budget for FY2026-27 will hinge on consolidation of debt over a medium term while also implementing the 16th Finance Commission’s recommendations for the next five years. The report said that the Centre may currently focus on increasing capital expenditure in FY27 as a sharp rise in financial burden is expected due to the implementation of the 8th Pay Commission from the beginning of the next financial year.

The report said that the pay commission will reduce space for discretionary spending for the government in FY28, as there will be a build-up of arrears of around 15 months.

“This would undoubtedly increase the GoI’s committed expenditure burden in that fiscal and in FY2029,” it said. “Given that the delayed implementation of the 8th CPC would lead to sizeable arrears, the fiscal impact of the same on the FY2028 Budget would be quite large, with a 40-50% expansion in the expenditure on salaries. This would constrain the fiscal space for discretionary expenditure, including capex, in FY2028, and perhaps, in FY2029.”

Traditionally, each pay commission’s recommendations have been implemented at 10-year intervals. The effective date of the 8th Pay Commission is considered to be January 1, 2026, with the previous pay commission implemented exactly 10 years before. However, the commission’s report is not ready yet, which makes it unlikely that an immediate revision in salary will take place.

The report said that the Budget to be presented on February 1 will likely peg the fiscal deficit target at 4.3 per cent of GDP for FY27. “However, with a capex target of ~Rs. 13.1 trillion (YoY: +14%) and an assumption for miscellaneous capital receipts at ~Rs. 600 billion, ICRA anticipates the GoI’s fiscal deficit to widen to Rs. 16.9 trillion in FY2027 from Rs. 15.7 trillion projected for FY2026 (in line with target),” it said.

The rise in capex will be to accelerate development projects before the burden of the 8th Pay Commission kicks in, as the freedom to spend will be reduced afterwards, according to the report.

What will this Mean for Employees

Due to the delay in the implementation of the 8th Pay Commission, a salary hike may not take place for government employees this year. However, the hike, to be sure, is likely to be postponed and not cancelled. When the decision is finally made by the pay commission, this delay will also result in a substantial amount of arrears. One may get the arrears of 15 months at once, so this will mean a lump sum of arrears is expected once the pay commission comes into effect.