Union Cabinet of India Nods its Approval for 7th Pay Commission

A big pay hike for over a crore government employees and pensioners was cleared by the cabinet on Wednesday. With this raise, several senior government officials will draw a higher salary than lawmakers in Parliament. Salaries and allowances will rise by at least 23.5 per cent, which had been recommended by the 7th Pay Commission - the panel that decides on government salaries.
The hike - the lowest in the last 70 years - is expected to cost the taxpayer an additional Rs. 1 lakh crore annually, or nearly 0.7 per cent of the GDP.The move will impact nearly 50 lakh employees and 58 lakh pensioners. The changes will be effective retrospectively from January 1 this year.The raise is built around a 14.27 per cent hike in basic pay.Rs. 73,650 crore of the total payout will come from the general budget, while Rs. 28,450 crore will come from the railways.
The previous pay panel had recommended a 20 per cent hike which was eventually doubled when it was implemented in 2008. Under the new scheme, the maximum salary for a government servant will be about 2.5 Lakhs a month, that's more than double the highest pay of Rs. 90,000 a month.    

This could revive demand in a struggling economy but could also lead to inflation, prompting Finance Minister Arun Jaitley to call the impact of the decision “a mixed bag”.The Cabinet, however, deferred a revision in allowances. A committee headed by Finance Secretary Ashok Lavasa will look into recommendations in this regard because there was resentment among employees over suggestions to scrap four allowances. Till then, the existing allowances will continue.

Please see: 7th Pay Commission Report