New pay panel announced. Here’s what happened after the last one

The previous pay commission was formed in 2013, and its recommendations, impacting both defence and civilian personnel, came into effect in 2016. The new pay panel’s recommendations are likely to take effect from 2026, and have implications on the Centre’s finances and hiring.

Implementation of a pay panel’s recommendations increases the cost pressure on the Centre’s budget due to salary and pension. 

The 7th Pay Commission, for instance, led to the share of salary and pension in the Centre’s revenue expenditure jump by about 3 percentage points between 2015-16 and 2016-17, to 25.6%. But, it declined in subsequent years since total expenditure increased at a faster clip. For 2024-25, this figure is projected at around 21.6%.

The big shift over the years is that pensions for retired employees—defence and civilians—have risen faster than the pay for current employees. Pension payments now account for around 40% of the Centre’s total salary and pension bill, up from about 30% in 2009-10. 

Defence personnel account for about half the total pension bill, given that they tend to retire sooner than their civilian peers, which means longer payout periods. 

Another major factor for the increase in the pension bill is that the Centre went on a major hiring spree in the 1970s, notably in the railways. That cohort of employees began retiring in the previous decade.

Reduced hiring

One lever the central government has used to manage its wage and pensions bill in the face of successive hikes in salaries is to slow down its pace of hiring. 

Since the early 2000s, the gap between the number of posts that the government approved and targeted to fill (or ‘sanctioned’) and the number of posts it actually filled (‘actuals’) has widened significantly.

As of March 2001, about 5% of sanctioned posts were unfilled. In March 2023, the period for which this data was last available, close to a quarter of all central government-sanctioned posts lay unfilled. 

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While this widening differential between sanctioned posts and actual personnel started in the early 2000s, and the percentage of vacancies rose steadily, it gathered pace after the 7th Pay Commission was implemented. In March 2016, just before that report, vacancies stood at 11.3% of sanctioned posts. By March 2023, this had expanded to 24.2%.

Sectoral tracks

Where has the burden of unfilled vacancies fallen? Railways, home affairs and the civilian staff under the defence ministry account for about 80% of civilian posts under the central government. The rate of vacancies across these three has varied widely. 

Till about March 2016, the railways filled all its sanctioned posts. But after the 7th Pay Commission, its vacancies soared from zero in March 2016 to 17% in March 2018 and to 21% in March 2023.

Vacancies under the home ministry, which also covers central police and paramilitary forces, rose at a much slower pace, from 7% in March 2016 to about 12% in March 2023. The highest rate of vacancies across these three sets is under civilian employment in the defence sector (42%). 

As a result of these different rates of growth, the share of home ministry in total civilian employees has risen from about 28% in March 2013 to around 33% in March 2023.

State burdens

While salary and pension has ranged at 20-22% of the Centre’s revenue expenditure, this figure is much higher for states, which also have pay commissions for their staff. 

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In the early 2010s, and again after the covid-19 pandemic, the consolidated figure for states breached 40%. It has since declined, but is still projected at 33-34%. As with the Centre, the share of pension in the total salary and pension bill of states has risen steadily, from 28% in 2011-12 to a projected 35.5% in 2024-25.

Compared to the Centre, a high wage bill has more far-reaching consequences for state governments. States face greater constraints on their spending and the extent to which they can borrow. 

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Hence, a high wage bill means that much less is left for development expenditure, the bulk of which is actually done by states. Such tradeoffs are what makes this periodic reset of salaries and pensions such a tricky exercise.

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