In a move anticipated by millions of central government employees and pensioners, the Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the Terms of Reference (ToR) for the 8th Central Pay Commission (CPC). This marks a significant step forward in the decennial revision of pay scales, allowances, and pensions for central government staff. The announcement, made on Tuesday, sets the stage for the commission to begin its work, with recommendations expected within the next 18 months.

The 8th CPC will be a temporary body consisting of a Chairperson, one Part-Time Member, and a Member-Secretary. While the chairman has not yet been appointed, the approval of the ToR signals that the government is moving forward with the commission's formation. According to reports, the commission is likely to be formally constituted in the coming weeks.

The commission's recommendations are expected to come into effect from January 1, 2026. The 8th Pay Commission is tasked with reviewing the existing pay structure, retirement benefits, and other service conditions of central government employees and making recommendations for changes.

During its deliberations, the 8th CPC will consider several key factors:

• The economic conditions in the country and the need for fiscal prudence.
• Ensuring that adequate resources are available for developmental expenditure and welfare measures.
• The unfunded cost of non-contributory pension schemes.
• The likely impact of the recommendations on the finances of the State Governments, which usually adopt the recommendations with some modifications.
• The prevailing emolument structure, benefits, and working conditions available to employees of Central Public Sector Undertakings and the private sector.

The establishment of the 8th CPC has been a subject of much anticipation. The 7th Central Pay Commission was formed in February 2014 and submitted its report after 18 months. The revised salaries were eventually rolled out in July 2016.

Several reports suggest potential changes that the 8th CPC might recommend. These include a possible increase in the minimum basic pension from ₹9,000 to ₹25,000 per month and reducing the eligibility for full pension from 15 years of service to 12 years. The fitment factor, which is used to determine salary increases, is also expected to be a key area of review, with speculations of it being set between 1.83 and 2.46.

The recommendations of the Pay Commission are not binding on the central government; however, they are generally accepted with minor modifications. Millions of state government employees are also likely to benefit, as states typically follow the central Pay Commission's lead in revising salaries.

The formation of the 8th Pay Commission is expected to not only revise the salaries and pensions of central government employees but also to give a boost to consumption and improve the quality of life for millions of people.