8th Pay Commission May Boost Salaries by Up to 40% by 2027: What the New Report Reveals

In a major development that could bring relief and excitement to millions of central government employees and pensioners, the 8th Pay Commission is expected to be implemented in the financial year 2026-27 (FY27). According to a recent report by Ambit Capital, the new pay structure could lead to a substantial salary and pension hike ranging between 30% and 40%, depending on various factors.

If approved and rolled out as anticipated, this move will significantly impact the earnings of government employees and retirees, while also placing a considerable financial burden on the exchequer. The report estimates that the implementation of the 8th Pay Commission could cost the central government approximately ₹1.8 lakh crore in additional expenditure. By comparison, the 7th Pay Commission had cost the government ₹1.02 lakh crore when it was introduced.

Timeline and Implementation Process

While the buzz around the 8th Pay Commission has created a sense of optimism, experts caution that the entire process—from formation to final recommendation—will take time. Ambit Capital notes that once the commission is officially formed, it will need several months to consult stakeholders, draft proposals, and finalize its recommendations.

Historically, the 7th Pay Commission took around 18 months to submit its report. Based on this precedent, it is expected that the recommendations of the 8th Pay Commission would come into effect in FY27.

Key Role of Fitment Factor in Salary Hike

The fitment factor plays a crucial role in determining how much an employee’s basic salary increases under the new pay structure. In the 7th Pay Commission, this factor was set at 2.57, which raised the minimum basic salary to ₹18,000.

However, it's important to note that whenever a new pay commission is implemented, the Dearness Allowance (DA) is reset to zero. This technical reset often makes the initial increase in take-home salary appear lower than expected. Still, Ambit Capital predicts that the upcoming fitment factor could be stronger, resulting in an average salary hike of 30% to 34% for government employees.

Boost to the Indian Economy

Beyond individual earnings, the ripple effect of the 8th Pay Commission could extend to the broader economy. The Ambit report suggests that higher salaries and pensions are likely to increase consumer spending, potentially adding 30 to 50 basis points to India’s GDP growth.

Sectors expected to benefit directly from this increase in consumption include:

• Real Estate

• Automobile

• Insurance

• Quick Service Restaurants (QSR)

• Non-Banking Financial Companies (NBFCs)

Notably, the 7th Pay Commission played a significant role in boosting GDP growth by 200 basis points in FY16, highlighting how impactful such wage revisions can be.

Increased Investment in Equity Markets

Another promising outcome projected in the report relates to the equity markets. With the government planning to implement the Unified Pension Scheme (UPS) in FY26, its share in pension funds will increase from 14% to 18.5%.

Should 45% of this increased fund allocation be invested in equities, total equity investment could nearly double—from ₹24,500 crore to ₹46,500 crore. This could inject fresh energy into the stock market, giving a boost to long-term investment and corporate growth.

Final Thoughts

While the official announcement of the 8th Pay Commission is still awaited, the projections shared in Ambit Capital’s report offer a hopeful glimpse into what may lie ahead for central government employees and the Indian economy as a whole. With a significant rise in income, enhanced market activity, and boosted economic growth, the 8th Pay Commission could become a landmark reform—if implemented as envisioned.