Process After Submission of the 8th Departmental Commission Report: Five Key Stages

The state government has made an important decision by announcing an increase in the inflation allowance for central employees. For a long time, central workers have been expecting the government to grant them a salary indexation increase for the Diwali holiday.

Just before Diwali, the Cabinet approved an increase in the inflation allowance, providing a significant gift to civil servants. An increase of 3 percent in the inflation allowance was approved for employees of the central government. Consequently, the inflation allowance for these workers increased by 3 percent, reaching 63 percent.

This increase in the inflation allowance applies to July. As a result of this increase, the salaries of central employees will increase in October. The total government expenditure related to this will amount to 10,016 crore rupees.

Several important questions have arisen surrounding the eighth Pay Commission regarding the inflation indexation (DA) for government employees and pensioners. Topics under discussion include the possible merger of the current DA with the basic salary, changes to the formula for calculating inflation payments, and potential increased support for employees amid rising prices. Union workers have intensified their demands, basing them on recommendations from previous pay commissions, to understand how indexation was regulated previously and what expectations are associated with the new commission.

Currently, government employees receive an inflation allowance (DA) of 60% of the basic rate under the seventh Pay Commission, while pensioners receive a similar compensation (DR). The key question is on what basis the DA will be calculated after the recommendations of the eighth commission are adopted. If the previous practice continues and the DA is revised in the new wage structure, there is a possibility that the current DA rate could be reset and started from scratch, although this is not yet determined and depends on the final decisions of the eighth commission and government approval.

The fifth Pay Commission recommended ensuring full inflation compensation at all levels of wages. It also proposed transforming the inflation allowance into Dearness Pay when the Consumer Price Index (CPI) exceeds the base index by 50%. This allowance should be included in the calculation of various financial benefits, including pension care allowances. The Commission deemed it unnecessary to create separate indices for different categories of workers and suggested calculating DA based on the average value of the All India Consumer Price Index for Industrial Workers (AICPI-IW) over 12 months, using the 1982 base year.

The sixth Pay Commission rejected the demand to include DA in the basic salary. The Commission stated that the new wage system provides for periodic adjustment of tariff rates and allowances, so transforming DA into Dearness Pay is not necessary. Furthermore, it was noted that transitioning to Dearness Pay would require logically changing the base index. The committee also rejected the demand for quarterly DA adjustments, maintaining the system of approving DA twice a year—on January 1st and July 1st—with payments in March and September for administrative convenience.

The seventh Pay Commission recommended maintaining the existing DA calculation methodology, as it considered this formula long-established and not requiring significant changes. Thus, before the eighth commission, the question arises again whether it will follow this scheme or make changes to the methods of calculating and compensating inflation.

Union demands aim for the inflation allowance to be integrated into the basic salary after reaching a certain level. The Federation of National Postal Organizations (FNPO) proposed considering the possibility of merging DA or DR with the basic salary or pension if they exceed 25%. The organization also insists on providing exact inflation compensation without rounding, i.e., 'point by point'. The Indian Pensioners' Association also proposed considering the inclusion of DR in the basic pension and changing the procedure for adjusting the inflation allowance. It is important to note that these are only union proposals, not approved commission recommendations.

Some worker groups demand quarterly revisions of DA and DR. The Indian Pensioners' Association believes that the calculation of DR should be based on a three-month average to avoid discrepancies due to rounding when compensating for inflation. The existing system provides for two annual revisions of DA, so the eighth commission faces the task of considering procedural changes to ensure greater support for employees and pensioners during rapid inflation growth. However, the commission's stance on this matter is not yet clear.

Problems also arise around the method of calculating DA based on the AICPI-IW index. Many organizations argue that the family size considered for index calculation should be five people, not three, for a more accurate assessment of real family expenses. The Indian Railway Technical Supervisors Association (IRTSA) objects to defining the 'working class' in the index, arguing that it does not reflect the expenditure needs of government employees. Furthermore, IRTSA questioned the use of geometric averaging in the 2016 series, believing it might underestimate the impact of price increases.

IRTSA also drew attention to the sixth Pay Commission's recommendation to create a separate inflation index based on government employee surveys. In the organization's view, employees working in cities of different categories need such a specialized index.

The increase in state employees' salaries is actively being discussed in the context of the 8th Departmental Commission Council (8th Pay Commission). Particular attention is drawn to the demand from trade unions for the application of a fitment coefficient of 3.833. According to this requirement, the minimum base salary for level-1 employees could rise from the current 18,000 rubles to approximately 69,000 rubles.

This calculation leads to a claim of a potential 140% increase. However, the question arises as to why this figure is so high, given that the actual salary increase under the 7th Departmental Commission Council was about 14.3%. It is necessary to understand where the 140% figure comes from and whether it represents a real increase in employee income or the result of a different calculation methodology.

The fitment coefficient is a multiplier used to translate old salary structures into a new system. The 7th Departmental Commission Council applied a fitment coefficient of 2.57. Currently, trade unions are demanding the use of a coefficient of 3.833 for the 8th Departmental Commission Council. Applying this coefficient to the current minimum base salary for level-1 (18,000 rubles) yields a result: 18,000 rubles multiplied by 3.833 equals 68,994 rubles, which is close to 69,000 rubles. It is important to note that this is only a preliminary estimate based on union demands; the government has not yet approved either this coefficient or the minimum base salary of 69,000 rubles.

To understand the origin of the 140% figure, one must also consider the inflation allowance (DA) added to the current base salary. The current base salary for a level-1 employee is 18,000 rubles, and the government is currently paying DA at a rate of 60%. Accordingly, the DA will be 18,000 multiplied by 60/100, which equals 10,800 rubles. The sum of the base salary and DA reaches 28,800 rubles. If this amount is compared with the proposed new base salary of 69,000 rubles (obtained by multiplying 18,000 by 3.83), the difference is about 40,200 rubles. The percentage increase is calculated by dividing this difference (40,200) by the current total amount (28,800) and multiplying by 100, which gives approximately 139.6%, or about 140%. This mathematical calculation is the basis of the discussion about a 140% increase.

However, it is critically important to understand that this comparison is made between the proposed new base salary and the sum of the current base salary plus DA. Therefore, it cannot be stated that the total income or the amount received by the employee will increase by 140%.

During the period of the 7th Departmental Commission Council, the actual salary increase was about 14.3%. At first glance, the difference between 140% and 14.3% seems enormous. To understand this discrepancy, one must check whether both figures are based on the same base. The 140% figure stems from a calculation based on the required fitment coefficient of 3.833 and the addition of 60% DA to the current base salary. Meanwhile, the 14.3% figure reflects the actual growth implemented under the previous departmental commission council. Therefore, caution is required when directly comparing these two percentages. One percentage is an assumption based on union demands, while the other is data applied in the previous system. Considering them equivalent increases without unifying the base and calculation method can be misleading.

It is premature to make such statements at this time. The demands for a fitment coefficient of 3.833 and a minimum base salary of 69,000 rubles are merely proposals put forward by trade unions, not approved government decisions. The final calculation will only be clear after the official adoption of new rules, including how the current inflation allowance will be adjusted in the new system, what the new tariff grids will be, and how this will affect other allowances.

Furthermore, changing the base salary and changing the total amount received by the employee are different things. Only after the recommendations of the 8th Departmental Commission Council are presented and the government makes a decision on them will it become known what the minimum wage will be and what the real increase in employee income will be. For now, 140% should be viewed not as a guaranteed increase, but as a mathematical estimate based on the demand for a 3.833 fitment coefficient.