The Centre is set to present the Union Budget for financial year 2026-27 on Sunday, Feb. 1, around three months after the formal constitution of 8th Pay Commission. The panel has been given an 18-month deadline to submit its report, which makes it unlikely that the salary and pension hike would be rolled out in FY27.
Central government employees and pensioners, whose cumulative count crosses 1.1 crore, may be keenly observing Finance Minister Nirmala Sitharaman’s speech for cues related to the 8th Pay Commission‘s rollout.
If the Centre decides to earmark an amount to absorb the fiscal impact of revised salaries and pensions, then speculation would rise of an accelerated rollout of the pay commission’s recommendations. In such a scenario, the panel may expedite its consultation with key stakeholders, and present its report way before the deadline that lapses in May 2027.
Impact On Exchequer
Notably, the rollout of 7th Pay Commission had an estimated impact of Rs 1.02 lakh crore on the exchequer in 2017. At the time, the basic salaries and pensions were revised using a fitment factor of 2.57 (157%). However, the effective hike was much lower, at only 14.3%, as the dearness allowance (DA) and dearness relief (DR), which then stood at 125% was reset to zero.
The DA and DR, which are paid as a percentage of the basic pay or pension, are reset to zero whenever a new pay commission is rolled out. They are subsequently raised every six months to offset the impact of inflation.
In case of the 8th Pay Commission, even a relatively lower fitment factor may lead to sharper effective hikes, as the DA and DR are less than half of what they stood during the end of 7th Pay Commission. Following the last revision in October, the two key allowances presently stand at 58%.
Even if the fitment factor is lower, the impact on exchequer under the 8th Pay Commission would be higher, on account of a larger workforce and retired staff. Kotak Institutional Equities, which projected a likely fitment factor of 1.8, said the fiscal impact of the entire exercise could be in the range of Rs 2.4-3.2 lakh crore.
When the 7th Pay Commission was rolled out, the estimated fiscal impact was of Rs 1.02 lakh crore in FY17, as per official data. In the case of 8th Pay Commission, this could be in the range of Rs 2.4-3.2 lakh crore, Kotak Institutional Equities said in a report released in July 2025.
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