The price tag of India’s 8th Pay Commission is the number economists keep returning to. Business Today notes that earlier estimates set the cost to the treasury between Rs 2 and Rs 2.5 lakh crore, although part of that flows back to the exchequer as tax revenue. QuantEco Research, in a report from August 2025, used the same range for the incremental cost. Kotak Institutional Equities expects it to stay near the 0.6 to 0.8 percent of GDP seen in earlier rounds, which it translates into Rs 2.4 to 3.2 lakh crore of additional spending.
What the commission covers
The Union Cabinet approved the terms of reference in late October 2025. The commission has 18 months from its constitution to report, and its recommendations are likely to apply from 1 January 2026. Business Today reckons that puts a report around April or May 2027, which would leave little mark on the next year’s budget arithmetic. The panel will serve more than 5 million central employees and, depending on the count, between nearly 6 million and 6.9 million pensioners. Policy Circle cites the higher figure of around 69 lakh.
The commission is also expected to weigh the country’s economic conditions, the need for fiscal prudence and the likely effect on state finances.
A bill that was already rising
The starting point is not light. Business Today says the Centre’s salary bill, covering pay, allowances and travel, is estimated at Rs 3.6 lakh crore this fiscal, against Rs 2.75 lakh crore two years earlier in FY24, with pensions estimated to reach Rs 2.7 lakh crore in FY26. Past commissions give a yardstick. Policy Circle recalls that the 7th Pay Commission, implemented in 2016, lifted the central wage bill by Rs 1 trillion, about 0.7 percent of GDP. That commission was set up in 2014, covered the decade from 1 January 2016, and Business Today credits it with a 14.3 percent rise in real pay. Policy Circle reports preliminary estimates of a salary increase of 30 to 34 percent this time, depending on the fitment factor.
Timing and arrears
Delay changes the picture. ICRA, quoted by Outlook Money, observed that the commission’s report was expected 15 to 18 months out and that arrears of roughly 15 months could build up. The hit to the FY2028 budget would be sizeable, ICRA said, with a 40 to 50 percent expansion in salary spending, squeezing discretionary outlays including capital expenditure in FY2028 and perhaps FY2029. The agency therefore expected the Centre to push capex in FY27, with a target of about Rs 13.1 trillion, up 14 percent, before the pay burden bites. It pegged the FY27 fiscal deficit target at 4.3 percent of GDP and expected the actual deficit to widen to Rs 16.9 trillion from Rs 15.7 trillion in FY26.
Earlier, EY India’s chief policy advisor DK Srivastava warned that salary and pension hikes could slow fiscal consolidation, and urged the government to keep a path towards a 3 percent deficit even if it takes longer.
The states
States feel it too. Business Today notes most will set up their own pay panels over the following two to three years. Policy Circle cites Comptroller and Auditor General data showing that state spending on salaries, pensions and interest has risen 2.5 times in a decade. In some states those items already take over 60 percent of revenue receipts. States that returned to the Old Pension Scheme face the heaviest strain, with pension outgo in Rajasthan and Himachal Pradesh heading to exceed spending on capital works inside two years.
The 16th Finance Commission is deciding devolution for 2026 to 2031 at the same time, and Policy Circle argues it must explicitly account for the extra wage load.
Sources
- Eighth Pay Commission: The math behind the bonanza
- 8th Pay Commission May Result In Sharp Rise In Govt's Salary, Pension Expenses: ICRA Report
- 8th pay commission: Fiscal challenge looms for states
- 8th Pay Commission: Experts flag downside of salary, pension revision for central govt employees
