8th Central Pay Commission (CPC) : Issues  & Way forward

8th Central Pay Commission (CPC) : Issues  & Way forward

• The Central Government has created 8th CPC
• Chairperson: Former Justice Ranjana Prakash Desai
• Member:
• Prof Pulak Ghosh (IIM Bangalore) – Part-time Member
• Pankaj Jain, IAS (Secretary, Government of India) – Member Secretary
• Timeline: The report is to be submitted in 18 months.

What is a Pay Commission?

• A Pay Commission is set up by the Union Government by executive order, on approval by Cabinet.

Function: To review and make recommendations on:

Salary structures

• Retirement benefits
• Service conditions of Central Government employees (including defence personnel)
• First CPC: 1946 set up

Terms of Reference (ToR) of 8th CPC:

The ToR is agreed by the Union Cabinet and is guided by the CPC’s recommendations.

Key aspects will include:

Economic Conditions & Fiscal Prudence:

• Pay increases must consider sustainability.

Adequate Resources for Development & Welfare:

• Funds for developmental priorities can remain unified.

Unfunded Pension Liabilities:

• Consider impact of contributory and non-contributory pension schemes.

Peer State Impact:

• Many request States to adopt or apply the recommendations, thus fiscal impact should be considered.

Comparison with Other sectors:

• Pay and working conditions should be reviewed against Central PSUs and private sectors.

Global Practices in Public Sector Compensation:

Development of Pay Principles:

• Period Pay Principle Pay Principle Description
• Pre-1970s Equity Anchor public pay rates to similar roles in the private sector
• 1980s Efficiency Pay based on performance and productivity
• Post-1990s onwards Performance & Incentives     Pay that balances monetary affordability with merit-based pay

Modern Perspective:

• Emphasis on:
• Recruiting and retaining talented staff
• Budget sustainability for the public purse
• Characteristics of fair public sector pay that are prevalent globally:
• Clear philosophy
• Ability to attract talent
• Internal equity rewarded
• External competitiveness rewarded
• Transparency

Indian Context:

• Internal equity is relatively well aligned.
• External competitiveness is significantly trailing (at least for higher level and specialist roles).
• India’s character and stature as a public employer has a more modest remarks of pay than other large democracies, contrary to what many believe.

Key Issues & Challenges Ahead:

(a) Pay Structure Comparison:

• Entry-level: Higher in government than equivalent pay in private sector
• Higher level: Lower than equivalent in private sector
• Compression ratio (lowest : highest pay): 1:12.5 (according to 7th CPC)
• Perks (relative to the private sector) and job security compensate for lower higher level pay
• Willingness to revisit a reasonable compensatory level for specialist higher level roles with typical market disruption

(b) Non-salary Intangibles

• Learning & Development, Training, Work environment, Flexibility and Health promotion are not specifically identified as being clearly included in Terms of Reference.
• The potential for 8th CPC to conceptualize these qualitative issues.

Fiscal Restrictions:

• Pension Bill projected (2025-26): ₹2.76 lakh crore
• Total revenue expenditure: ₹44 lakh crore
• Fiscal space is hindered by rising pension expenditures.
• There is a need to balance employee motivation and financial sustainability.

(d) Greater Representation on CPC:

CPC is currently comprised of members from the Judiciary/Public Service/Academia.

Proposal: To enhance understanding of economic and human resources ramifications, consider adding representation from Finance & HR professionals to the CPC.

Forward Thinking:

• Examine compression ratios and pay competitiveness of higher level positions.
• Offer performance based incentives in roles above level 7.
• Develop public employment policies which align with non-financial motives.
• Financial prudence should always outweigh motivation and productivity.

•Widen composition of CPC to allow for greater expertise and increased inclusivity