How will the 8th Pay Commission impact the Indian economy? Will it increase the consumption that has fallen this year, pulling down the GDP growth rate from 8.2% in FY 2023-24 to 6.4% in FY 2024-25?
Financial experts and economists hope the increased salary, allowances and perks may put additional and disposable money into the pockets of the salaried class.
An increased salary may increase consumption as well as investment.
It may increase the purchasing power of more than one crore people and their family members in one go.
7th Pay Commission
The 7th Pay Commission, headed by A K Mathur, recommended a hike of 23.55% in pay and allowances for central government employees.
After the 7th Pay Commission was implemented on January 1, 2016, the increase in the salary of government employees was such that a newly hired government employee at entry level got a minimum salary of Rs.18,000 per month as opposed to Rs.7,000.
Thus the minimum salary of a central government employee was increased more than twofold.
Consequently, the minimum pay for a newly hired Class I Officer has been raised to Rs.56,100 per month.
It also impacted the pensioners. The Pay Commission suggested that the new pension should be equal to 50% of the amount as determined.
Consequently, a pensioner received 2.57 times their base pension in the future.
Increased Salary To Push Consumption
This kickstarted the Indian economy in a big way. State governments came under pressure and most of them had to increase the salary of their employees.
The importance can be understood by the fact that the Confederation of Indian Industries (CII) in its pre-budget meeting with Finance Minister Nirmala Sitharaman advised her to last Income Tax, increase the standard deduction and increase the minimum wages as well as budget allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme.
What Has CII Said?
The CII argued that additional disposable income will increase consumption which will boost the overall economy.
When the National Statistical Office released its First Advanced Estimate last week, it said that the GDP would increase only 6.4% of the GDP. It also said that it is due to the decreased consumption.
Experts also believe that the increased pay and perks would also boost the rural economy as most of the affected people still remain in villages and small towns. Their increased consumption will overall push the Indian economy.
The 8th Pay Commission may be implemented on January 1, 2026. It is most likely to impact the GDP growth rate of FY 2027-28.
