Indexation Policy of the 7th Central Pay Commission Report

There is a need to revise the manner in which the pay commissions have indexed inflation and the concomitant pay rise. This critique looks at the weaknesses of the existing methodology and proposes some revisions to make it more representative and robust.

The views expressed are personal and do not reflect the views of the employer.

Inflation statistics matter enormously as they underpin monetary policy and affect the incomes of millions of people. For most of us, lived experience of prices can be entirely different from their summary measure—a “price index”—partly because of reasons such as variegated nature of individual background, host of choices available/exercised, etc. In spite of the fact that “purists” always refrain from terming a consumer price index (CPI) as a cost of living index, they are used extensively to adjust benefit levels, in wage negotiations, etc.

Decisions on inflation indexation play a considerable role in maintaining the purchasing power of individuals. These decisions are usually frozen in nature and are reviewed with the advent of the pay commission. The 7th Central Pay Commission (7CPC), in its recently submitted report, has found it appropriate to grant indexation and fulfil the indexation ambitions of millions of central government employees and pensioners by not changing the existing methodology for calculating the dearness allowance.