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8th Pay Commission: One-time boost… some time away

Even as the intermittent noise about the 8th Central Pay Commission continues, the implementation is likely to be around 1.5 years out, with the Terms of Reference (ToR) and Commission members yet to be finalized. Past Pay Commissions have pegged the fiscal cost at 0.6-0.8% of GDP. We estimate the fitment factor at the minimum pay level at around 1.8 (real growth in pay at around 13%). Select discretionary consumption and savings (physical and equities) have been key beneficiaries in past pay revisions.

Government yet to notify the ToR and appoint the CPC members

The process started in January 2025 with the announcement of the 8th Central Pay Commission (CPC). Subsequently, the Joint Consultative Machinery has been in discussions to finalize the Terms of Reference for the Commission, though it is yet to be finalized by the government. The usual process would be to constitute the CPC, which will then begin deliberations with central and state government officials, representatives of employee organizations and pensioners, experts, etc. After the consultations, the CPC will submit their report and recommendations to the government. The government will seek Cabinet approval to implement the recommendations.

8th Central Pay Commission implementation unlikely before 4QCY26

Based on previous CPC timelines, we expect 8th CPC recommendations to be implemented around 4QCY26/1QCY27. We note that average time taken to submit the report is around 1.5 years from the date of CPC formation (1.5 years for 6th CPC and 7th CPC; around three years for 4 th CPC and 5th CPC). The time taken by the government to implement after report submission has been 3-9 months. Exhibit 1 summarizes the timelines over the last four CPCs.

Fitment factor likely at 1.8; historically, fiscal cost at 0.6-0.8% of GDP

While it is premature and speculative to ascertain the impact of the 8th CPC on the fiscal, past CPC reports have pegged the impact at 0.6-0.8% of GDP. 8 th CPC will likely keep the fiscal cost capped at similar levels, translating to around Rs2.4-3.2 tn of additional expenditure. We estimate that at the minimum pay level (Rs18,000 as per 7th CPC), the fitment factor could be around 1.8 (moving up to Rs30,000 in 8th CPC). This implies a pay growth (in real terms) of around 13% (14.3% in 7CPC) (see Exhibit 2).

8th CPC to impact 3.3 mn employees, similar to 7

We expect the 8th CPC to directly impact 3.3 mn central government employees, similar to 7 th Pay Commission (see Exhibit 3). The bulk of the benefit will accrue to employees in Grade C, who constitute almost 90% of the central government workforce and may have a higher marginal propensity to consume. It is important to note that the share of central government employees’ compensation versus listed companies’ compensation has steadily reduced over the past decade (see Exhibit 4).

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