8th Pay Commission 2025: Government Confirms Constitution But Rules Out DA–Basic Pay Merger

The Ministry of Finance recently confirmed the formal constitution of the 8th Central Pay Commission (8th CPC) via a Gazette notification dated November 3, 2025. However, the Ministry also clarified that there is “no proposal… under consideration at present” to merge Dearness Allowance (DA) with basic pay, disappointing central government employees and pensioners.

The 8th CPC is tasked with reviewing the pay, allowances, benefits, and pensions for central government staff.

8th Pay Commission 2025: Government Confirms Constitution But Rules Out DA–Basic Pay Merger

What is DA and Why the Merger Was Expected?

• Dearness Allowance (DA): A cost of living adjustment provided to employees and pensioners to mitigate the effects of inflation. It is a temporary component, revised periodically based on inflation indices (CPI-IW/AICPI-IW).
• Merger Expectation: Historically, when DA crosses 50% of the basic pay, it has often been merged with basic pay under previous pay commission structures. Since DA had recently crossed this threshold, employee unions expected the merger to be implemented now.
• Benefit of Merger: A merger would permanently increase the base salary, leading to higher calculations for allowances (like HRA), pension, and other retirement benefits, offering better long-term financial stability.

Government’s Stand and Reluctance

The government has chosen not to merge DA with basic pay primarily due to fiscal prudence:

1. Increased Liabilities: Merging DA permanently inflates the basic pay, which significantly raises recurring liabilities for the government, including allowances linked to basic pay and long-term pension commitments.
2. Flexibility: Maintaining DA as a separate allowance provides the government with flexibility to make periodic inflation adjustments without permanently increasing the base pay burden.
3. ToR Mandate: The current Terms of Reference (ToR) for the 8th CPC do not include an explicit mandate for a DA–basic pay merger.

Concerns of Employees

The decision has led to disappointment and concern among employee unions:

• Erosion of Real Earnings: For lower-grade staff, the absence of a merger means continued inflation may erode the real value of their earnings.
• Pensioners Overlooked: Employee groups are concerned that the current ToR does not explicitly address pension revision, raising fears that retirees’ issues might be sidelined.
• No Interim Relief: Hopes for immediate relief through an interim DA merger have been ruled out for the time being.

The 8th CPC is expected to submit its final recommendations within 18 months. Until any structural change is implemented, the current system of periodic DA revision based on inflation indices will continue.

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Question & Answer

Q1. The 8th Central Pay Commission (8th CPC) was formally constituted via Gazette notification in:
A) October 2025
B) November 2025
C) December 2025
D) January 2026
Answer: B) November 2025
Explanation: The 8th CPC was formally constituted through a Gazette notification dated 3 November 2025, as confirmed by the Ministry of Finance.

Q2. What is the status of the proposal to merge Dearness Allowance (DA) with basic pay, as clarified by the Ministry of Finance?
A) It will be merged immediately.
B) It is under active consideration.
C) No such proposal is under consideration at present.
D) It will be decided only after the final report.
Answer: C) No such proposal is under consideration at present.
Explanation: The Ministry stated in its written reply to Parliament that “no proposal… is under consideration at present” regarding the DA–basic pay merger.

Q3. Historically, crossing which threshold of basic pay often triggered the merger of DA with basic pay?
A) 25 percent
B) 40 percent
C) 50 percent
D) 65 percent
Answer: C) 50 percent
Explanation: Historically, when DA surpassed 50% of basic pay, it often triggered a merger in previous pay commissions.

Q4. The government’s primary reason for reluctance to merge DA with basic pay is cited as:
A) Lack of parliamentary approval.
B) Insufficient data from the central banks.
C) Fiscal prudence due to increased recurring liabilities.
D) Requirement for a Constitutional amendment.
Answer: C) Fiscal prudence due to increased recurring liabilities.
Explanation: Merging DA permanently raises the basic pay, creating substantial long-term fiscal burden, which is why the government avoids it.

Q5. DA is periodically revised based on which factors/indices?
A) Gross Domestic Product (GDP) Growth Rate
B) Consumer Price Index for Industrial Workers (CPI-IW/AICPI-IW)
C) Foreign Exchange Reserves
D) Wholesale Price Index (WPI)
Answer: B) Consumer Price Index for Industrial Workers (CPI-IW/AICPI-IW)
Explanation: DA revisions are based on inflation indicators, primarily the CPI-IW/AICPI-IW index.

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