DA-Basic Pay Merger Confusion
Amid growing speculation around the 8th Central Pay Commission (CPC), uncertainty has persisted over whether the government would merge dearness allowance (DA) with basic pay. In a Lok Sabha reply, Minister of State for Finance Pankaj Chaudhary clarified that no such merger is under consideration. He emphasized that DA and Dearness Relief (DR) are revised semi-annually based on the All-India Consumer Price Index for Industrial Workers (AICPI‑IW), protecting salaries and pensions from inflation.
This statement followed MP Anand Bhadauria’s question on whether a merger could provide interim relief against high inflation. The minister’s reply effectively rules out any DA–basic pay integration ahead of the 8th CPC recommendations, which are expected from 1 January 2026, once the 7th CPC cycle ends.
8th CPC: Scope, Terms of Reference, and Fitment Factor
Chaudhary confirmed that the 8th CPC has been formally notified and its Terms of Reference (ToR) issued. These commissions examine pay scales, allowances, pensions, and propose a fitment factor—a multiplier applied to existing basic pay to determine revised salaries.
The fitment factor will directly determine how much basic pay resets upward. Under the 7th CPC, a factor of 2.57 was applied, merging then-accrued DA (about 125%), leaving a smaller portion as “real” increase. For the 8th CPC, the chosen factor will be applied to the 7th CPC basic pay, but DA will reset to zero and begin accumulating anew on the revised basic. This structure means even a lower multiplier can yield a noticeable basic-pay jump, though the effective salary hike initially feels smaller because the accrued DA is wiped.
Current projections, including analysis by Kotak Institutional Equities, estimate a fitment factor of around 1.8, compared to 2.57 under the 7th CPC. This would raise minimum basic pay from roughly ₹18,000 to ₹32,000. However, with DA resetting to zero, the effective overall salary hike would initially be about 13%—slightly lower than the 14.3% rise under the 7th CPC. Speculative ranges for the factor extend from 1.8 to 2.8, influenced by fiscal space and political considerations.
Practical Impact on Salaries and Pensions
The new fitment factor affects salaries at multiple levels:
· Basic Pay: Multiplied by the new factor (e.g., 1.8), repositioning employees in a higher pay matrix and raising the base for future DA and allowances tied to basic pay.
· Gross Monthly Pay: Gains an initial jump from higher basic, but loses current DA percentages; over time, DA accumulation on the enlarged basic widens the net pay gap versus pre-8th CPC.
· Pensions and Retirement Benefits: Since pensions are typically 50% of last drawn basic, higher fitment directly uplifts pensions, gratuity, and leave encashment, offering long-term benefits.
Unions, including the National Council (JCM), are pressing for at least a 2.57 fitment factor to safeguard real wages from cumulative inflation. Higher factors would amplify both immediate and long-term gains but also raise the fiscal burden on the exchequer.
Patience and Structural Reform
The government’s stance—no interim DA merger—clarifies that structural salary adjustments will wait for the 8th CPC. For central employees and pensioners, this means DA continues as an inflation buffer in the short term, but meaningful wage realignment hinges on the fitment factor. Even if initial gains are modest, higher basic pay will compound over time as DA accrues, affecting allowances, pensions, and gratuities. The 8th CPC thus represents the real opportunity for lasting structural reform in public-sector compensation.
(With agency inputs)
