New Delhi, July 21, 2025 – The much-awaited 8th Pay Commission, although receiving cabinet approval earlier this year, is yet to be formally constituted. A recent detailed report by Kotak Institutional Equities outlines preliminary expectations and financial implications. According to Kotak’s analysis, central government employees might see an effective salary increase of approximately 13%, with a proposed fitment factor of 1.8—notably lower than the 2.57 figure that underpinned the 7th Pay Commission. Please read below for more details
What Is the “Fitment Factor” and Why It Matters
Under pay commission terminology, the fitment factor determines how much an employee’s basic salary multiplies due to revisions. If the factor is 1.8, a basic salary of ₹18,000 would increase to ₹32,400 (₹18,000 × 1.8). However, the real-world impact on take-home pay is tempered by how Dearness Allowance (DA) and other allowances adjust—or reset—when the basic changes.
For instance, the current DA is pegged at 55% of the basic pay, but once the new pay commission sets in motion, DA typically resets to zero while the market price index readjusts. These mechanics mean that while basic pay sees a substantial jump, overall gross salary escalation remains closer to newly calculated 13% in real terms, not a straight 80%.
Comparing Fitment: 8th Versus 7th Pay Commission
Under the 7th Pay Commission, the revised fitment factor was 2.57. That means a ₹18,000 basic salary would have risen to ₹46,260. In contrast, a factor of 1.8 for the 8th CPC represents a 30% lesser multiplier. Kotak Institutional Equities interprets this as a deliberate fiscal constraint, signaling the government’s attempt to achieve fair upgrades without repeating the expansive subsidy burden of the 7th CPC structure.
How Kotak Calculated a 13% Effective Hike
Kotak’s equity analysts broke down the salary components carefully to arrive at a net effective hike of approximately 13%:
- Basic Salary Change
- Previous: ₹18,000
- New (1.8×): ₹32,400
- DA Component Reset
- Earlier DA (55%): ₹9,900
- Now reset to zero — absorbs part of the basic gain
- Revised Gross Calculation
- Although basic pay increases by ~80%, resetting DA reduces the actual gross impact near the 13% mark
A similar logic applies to higher pay scales as well. For example, ₹50,000 basic increases to ₹90,000 with a 1.8 fitment factor. But with existing ₹27,500 DA removed, the final rise in total monthly take-home remains closer to 14–15% across various pay levels.
DA Trends and Its Impact on Overall Salary
By the time the 8th CPC is fully implemented, Dearness Allowance is expected to cross 60% of basic pay once again. The DA is recalibrated semi-annually based on inflation indices. After launching the new basic structure, DA resumes growth from zero, helping employees gradually recover pre-dearness levels.
Monetary Impact on the Exchequer
One reason the government chose a moderate fitment factor of 1.8 appears to be cost containment. Kotak estimates the pay review could cost between ₹2.4 to ₹3.2 lakh crore—considerably higher than the ₹1.02 lakh crore burden during the 7th Pay Commission rollout in FY2017.
While such a financial load is distributed across several years, the magnitude indicates conscious policymaking: balancing employee welfare against fiscal stability.
Who Gains Most from 1.8 Fitment?
The Kotak report suggests that Grade C employees – which constitute about 90% of central government workforce – will see the most marginal impact on disposable income. These employees typically earn less and have a higher tendency to spend any increment. Consequently, enhancing their income can help stimulate consumer demand in the broader economy.
What Do Employee Representatives Say?
Leaders from the National Council—Joint Consultative Machinery (NC-JCM), representing various federations of central government staff and pensioners, have expressed mixed views.
- They argue that a fitment factor “at least equal to 2.57” is necessary to maintain parity with the previous commission.
- However, they acknowledge that 1.8 may be the practical compromise in current economic conditions.
A senior NC-JCM member remarked:
“Employees understand the fiscal responsibility of the government. While hopes were pinned on a higher multiplier, the final recommendation must strike a balance between genuine reward and national priorities.”
Why the 8th CPC Was Delayed – And When It Will Roll Out
Although the cabinet gave in-principle approval in January 2025, assembling a full commission involves intensive consultations with trade unions, Ministries like Finance and DoPT, and fringe stakeholder groups (like defence and parliamentary cadres).
- The Department of Personnel and Training (DoPT) has circulated guidelines for member selection.
- Field-level data on living costs and inflation is being collected nationwide.
- Final recommendations will be drafted, debated, and submitted—likely by early 2026.
Kotak suggests pay hikes based on 8th CPC might apply from financial year 2027–28 onward, factoring time needed to implement and budget for the revised scales.
Broader Impact on Salaries and Pensions
A new pay commission does not only affect current employees; retirees’ pensions are linked to the same structure. Therefore, prime beneficiaries will include:
- Pensioners whose allowances grow with the increase in the basic pay
- Mid-to-late career employees gaining more cumulative grade pay
- Newly hired entrants benefiting from updated wage matrix from day one
Revisiting the fitment structure thus creates ripple effects across multiple groups.
Bottom Line – A Moderate but Meaningful Pay Reset
In summary, the 8th Pay Commission proposes a fitment factor of 1.8, significantly shorter than the 2.57 earlier, but ample to deliver a 13% effective pay rise. Though it does not fully restore pre-7th CPC take-home levels, it aligns with current economic prudence.
Here’s a quick recap:
- Fitment Factor: 1.8
- Effective Gross Hike: ~13%
- Recommencement Year: FY 2027–28
- Central Exchequer Liability: ₹2.4–3.2 lakh crore
Frequently Asked Questions (FAQ)
1. What is the fitment factor?
The multiplier used to calculate revised basic salary. For example, ₹18,000 × 1.8 = ₹32,400.
2. Why is net increase much lower than 80%?
Due to reset of DA and other allowances when the basic is recalibrated.
3. When will the new pay scale be implemented?
Likely from Financial Year 2027–28, following formal commission setup and approval.
4. Who benefits most?
Grade C employees and pensioners stand to benefit significantly in real income growth.
5. Will allowances like DA, HRA, TA increase too?
Allowances are usually revised in updated rules, but DA is tied to basic pay and inflation index.
The 8th Pay Commission marks a midway point—offering measurable salary improvements without straining budgetary limits. While Not hitting the “2.57 factor” that employees once hoped for, the proposed 1.8 multiplier and 13% effective increase still represent a fair and fiscally responsible uplift.
For 3.3 million central government employees and pensioners, a modest but meaningful bump in basic pay lies ahead. As negotiations continue and final recommendations are framed, one thing seems clear—this pay revision will affect household finances and perhaps even consumer behavior at scale.
